Privacy and Markets: A Love Story

INTRODUCTION In 2014, a former congressional staffer by the name of Matthew Colbert developed a software application he called "BuyPartisan." (1) The app invites consumers with smart phones to scan the barcodes of just about any product and learn the political leanings of the company that sells it. The display consists of a meter displaying blue or red, depending on the campaign contributions of the company's leadership. "Wouldn't it be great," Colbert asks, "if you could spend how you believed?" (2) Occasionally market participants depart from the traditional market criteria of price and quality. A conscientious consumer might strongly prefer her coffee to be "free trade" or a diamond to be "conflict free." A certain kind of religious flower shop owner might refuse on moral grounds to provide flowers to a wedding with two grooms. (3) Economists would chalk these departures up to "exogenous preference"--attributes that the market can take into account. But imagine if consumers and businesses knew everything. Not just the circumstances under which a product was made or the politics of its seller, but whether each other market participant supports a rival sports team, believes in God, or bakes erotic cakes on the weekend. In other words, imagine a marketplace without privacy. Would such a marketplace be desirable? Would it be efficient? Would the market mechanism work at all if price and quality took a backseat to salient but arguably extraneous information about market participants? This Article examines the complex relationship between privacy and markets. In so doing, it rejects both law and economics' skepticism toward privacy and the hostility many privacy law scholars have toward markets. The thesis of this Article is that privacy and markets are in important ways sympathetic. To paraphrase contract theorist Charles Fried, it is not that privacy will help markets work better, but that the market mechanism quietly assumes and relies upon privacy to work in the first place. (4) And the reverse is true as well. Privacy supports the basic market mechanism by hiding enough distracting, value-laden information from market participants. A certain absence of knowledge focuses us on market-relevant considerations such as quality and price over salient but distorting information such as personal or political commitments. The beauty of the market mechanism is that you do not need to know that the person you are dealing with voted for a politician you hate or doubts we landed on the moon, or for any other basis for distrust or discrimination, only that he is offering the best quality good at the lowest price. Privacy also enables the longevity of business partnerships through the facilitation of economic intimacy. Market relationships face an ever-present specter of defection--the prospect of a better deal somewhere else--which participants manage in part through the selective disclosure of preferences and expectations without penalty. In business, as in life, privacy helps you let the right one in, and in the process engenders the trust necessary for economic stability. (5) Finally, privacy helps keep a check on information asymmetry between people and firms. While economists agree that information asymmetry is undesirable, the standard remedy is to introduce additional information--for instance, through mandatory disclosure laws. (6) But today's firms are increasingly more capable than consumers of processing new information, such that introducing more information only exacerbates asymmetry and its discontents. Privacy can interrupt this dynamic and help save the market from itself. These arguments build the case for protecting privacy in the market context, including through the force of law. It is important to note, however, that privacy assumes and relies upon markets as well. Privacy is best understood as an instrument of human flourishing. (7) To flourish, people need the separation from others that privacy affords. …