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Antitrust

Google’s DNS-Over-TLS Is Good Because Competition in Advertising Is Bad

AT&T and Comcast are complaining to House antitrust investigators that Google’s plan to encrypt DNS, the internet’s addressing system, will prevent them from snooping on web traffic that will remain transparent to Google, giving Google a competitive advantage in targeting advertising to consumers.

They may be right that DNS-Over-TLS will give Google a competitive advantage, but that’s good for consumers, not bad. Because advertising undermines consumer sovereignty, and more competition in the targeting of advertisements means more targeted advertising.

That is the irony of antitrust scrutiny of Google’s power in the advertising market more generally. Advocates of greater antitrust enforcement seem to think that smashing Google’s advertising monopoly will somehow increase privacy and benefit the public. They’re wrong.

It is a staple of antitrust economics that more competition means more output, and in the market to use consumer data to target advertisements, that means more targeted advertising. Google, Comcast, and AT&T will race to hoover up every last bit of consumer information, subject it to the most sophisticated data analysis methods known to science, and use the insights generated thereby to induce consumers to buy their clients’ brands. (Of course, Google, Comcast, and AT&T may compete with each other to offer privacy protections to users, but that can go only so far, because they also compete with each other for advertising dollars based on the amount of data on consumers they can leverage to target ads.)

Competition is great in markets that produce products that benefit consumers. But it is terrible in markets that produce products that harm consumers, because it makes those markets more productive. That’s why the tobacco oligopoly was a good thing. And that’s why the 21st Amendment, which repealed Prohibition, gave the states the power to promote monopolization of the distribution of alcohol.

And targeted advertising really is bad for consumers. As I pointed out not long ago (summary here), the information age has eliminated the sole economic justification for advertising–that it provides consumers with useful product information that they cannot find anywhere else–leaving advertising with a single functional use for firms: to manipulate consumers into buying products that they do not really prefer (otherwise the advertising wouldn’t be needed to induce them to buy the products). Targeted advertising magnifies this manipulative power.

As recently as the late 1970s, antitrust enforcers in the United States understood that advertising’s manipulative function harms competition, by putting firms that produce products that consumers do in fact prefer at a competitive disadvantage. In that period, the FTC brought, and sometimes won, a series of cases against large advertisers, arguing that their attempts to promote their products were anticompetitive.

The FTC did not bring those cases against firms that distribute advertising, which at that time were mostly newspaper and television companies. The FTC brought those cases against the firms that paid those newspaper and television companies to distribute their advertising. Because the FTC understood that the competitive threat posed by advertising is not that the platforms that distribute ads tend toward monopoly, but that the advertising those platforms distribute itself undermines competition in the markets in which advertised products are sold.

In other words, in the 1970s, antitrust enforcers understood which level of the advertising distribution chain to target in order to benefit consumers. Today, the House seems fixated on the wrong level, on the platforms that distribute advertising rather than the markets in which advertising is deployed to harm competition.

That fixation may be due to the influence exerted by the newspaper industry on the House investigation. The market to distribute advertising tends toward monopoly because size is an advantage: the more eyeballs you can reach, the more valuable is your platform to advertisers. For most of the 20th century, newspapers ran the advertising distribution monopolies. But Google beat them–and took over as advertising monopolist–by offering a better product to advertisers. The newspapers look to have turned to antitrust enforcers to try to get back into the game.

That should make consumers, and anyone worried about privacy, very concerned. Because it means that the new antitrust movement isn’t about consumer welfare, or privacy, but about ensuring that newspapers and telecoms get their fair share of consumer data and consumer exploitation.

And that brings me back to DNS-Over-TLS. Today, the non-encryption of DNS lets any firm on the internet, including Google, AT&T, and Comcast, snoop on your internet usage. DNS-Over-TLS would limit the snoopers to Google. That’s a net gain for consumers, and anyone concerned about privacy, which is why it is supported by the non-profit Mozilla Foundation, which makes the Firefox web browser, as well as the Electronic Frontier Foundation. To the extent that DNS-Over-TLS helps Google protect its advertising distribution monopoly against new entrants like AT&T, the technology harms competitors, and will allow Google to continue to extract high fees from firms that buy advertising. But higher fees mean fewer ads, which is good for consumers.

If we see the House move against this technology, we’ll know for sure whose side it is on.