The Peltzman Model of Regulation and the Facebook Hearings

If you want understand the Facebook hearings it’s useful to think not about privacy or  technology but about what politicians want. In the Peltzman model of regulation, politicians use regulation to tradeoff profits (wanted by firms) and lower prices (wanted by constituents) to maximize what politicians want, reelection. The key is that there are diminishing returns to politicians in both profits and lower prices. Consider a competitive industry. A competitive industry doesn’t do much for politicians so they might want to regulate the industry to raise prices and increase firm profits. The now-profitable firms will reward the hand that feeds them with campaign funds and by diverting some of the industry’s profits to subsidize a politician’s most important constituents. Consumers will be upset by the higher price but if the price isn’t raised too much above competitive levels the net gain to the politician will be positive.

Now consider an unregulated monopoly. A profit-maximized monopolist doesn’t do much for politicians. Politicians will regulate the monopolist to lower prices and to encourage the monopolist to divert some of its profits to subsidize a politician’s most important constituents. Monopolists will be upset by the lower price but if the price isn’t lowered too much below monopoly levels the net gain to the politician will be positive. (Moreover, a monopolist won’t object too much to reducing prices a little since they can do that without a big loss–the top of the profit hill is flat).

With that as background, the Facebook hearings are easily understood. Facebook is a very profitable monopoly that doesn’t benefit politicians very much. Although consumers aren’t upset by high prices (since Facebook is free), they can be made to be upset about loss of privacy or other such scandal. That’s enough to threaten regulation. The regulatory outcome will be that Facebook diverts some of its profits to campaign funds and to subsidize important political constituents.

Who will be subsidized? Be sure to watch the key players as there is plenty to go around and the money has only begun to flow but aside from campaign funds look for rules, especially in the political sphere, that will raise the costs of advertising to challengers relative to incumbents. Incumbents love incumbency advantage. Also watch out for a deal where the government limits profit regulation in return for greater government access to Facebook data including by the NSA, ICE, local and even foreign police. Keep in mind that politicians don’t really want privacy–remember that in 2016 Congress also held hearings on privacy and technology. Only those hearings were about how technology companies kept their user data too private.

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Who cares about politicians? What has Facebook worried is the 2011 FTC consent decree - 'Following a public comment period, the FTC has accepted as final a settlement with Facebook resolving charges that Facebook deceived consumers by telling them they could keep their information on Facebook private, and then repeatedly allowing it to be shared and made public.

The settlement requires Facebook to take several steps to make sure it lives up to its promises in the future, including by giving consumers clear and prominent notice and obtaining their express consent before sharing their information beyond their privacy settings, by maintaining a comprehensive privacy program to protect consumers' information, and by obtaining biennial privacy audits from an independent third party.' https://www.ftc.gov/news-events/press-releases/2012/08/ftc-approves-final-settlement-facebook

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"If you want understand the Facebook hearings it’s useful to think not about privacy or technology but about what politicians want."

If you want understand ANY NATIONAL ISSUE it’s useful to think not about privacy or technology but about what politicians want.

Fixed for you.

The only reason there are Facebook hearings is because the Trump campaign seems to have benefited from its data. When the Obama campaign was using FB data -crickets.

https://www.investors.com/politics/editorials/facebook-data-scandal-trump-election-obama-2012/

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Contrary to Tabarrok's assertion, Facebook isn't free, rather users place an extremely low value on their privacy; the whole point of using Facebook is to share personal information. But Tabarrok is correct about government access to user data. It's no coincidence that Cowen's friend Peter Thiel not only sits on the Facebook board of directors, but is the founder and owner of Palantir, which is in the business of snooping on people on behalf of government and business (and a collaborator with Cambridge Analytica); indeed, Palantir is often referred to as "Stanford Analytica".

>Facebook isn't free, rather users place an extremely low value on their privacy;

OTOH, Facebook seems to provide unlimited cloud storage with unlimited bandwidth, a better-than-average web authoring platform, etc. Other companies charge for those kind of things.

People pay for those things too. As in hard drive mining (YouTube).

If people really wanted a People's Facebook, there is plenty of proof of concept out there.

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Facebook is a very profitable monopoly that doesn’t benefit politicians very much. Although consumers aren’t upset by high prices (since Facebook is free), they can be made to be upset about loss of privacy or other such scandal. That’s enough to threaten regulation. The regulatory outcome will be that Facebook diverts some of its profits to campaign funds and to subsidize important political constituents.

Well Facebook benefited Obama and his campaign quite a lot. Indeed I can remember back to the days when the Left was proud of the interesting ways Obama used Facebook's data.

I think that AT is right that users have been made to be upset. They are not really. But the constant hysterical bed wetting by the media has led some to be concerned. Again we see the anti-Trump hysteria mainly hitting the Democrats and their friends. As with MeToo. Zukerberg handed over the keys the palace to Obama but that is not enough to save him.

The end game will be Facebook working more closely with the FBI and the rest of the Alphabet Swamp agencies. No doubt some of those billions will go to Leftists in Congress and their favorite causes. The data of Facebook's users will go on being abused. But CNN won't be wetting the bed over it and so no one will care.

I doubt this will add to the benefit of mankind - and no doubt Facebook will demand a regulatory regime in return which inhibits competition.

What I want to see is CNN move on to alleging the Russians used locked iPhones and so Apple has to hand over access. What would Apple do then in the face of their friends' hysteria?

Legally speaking (i.e. excluding specifically ethical considerations), using data for the stated purpose is not the same as using data for purposes other than stated.

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Except Facebook was not a monopoly then, nor now.

The Obama campaign used meetup more than Facebook, as I recall in 2008, and simple texting were more important than facebook, ie texting small dollar donations to build contact lists, and websites with signups for building mailing and phone lists for gotv and more donations.

From 2008 to the present, Facebook is simply one of multiple social networking resources the Obama's, the campaign, used, and hardly the most important.

Facebook had a critical role in 2012 for Obama

Facebook faces what some are calling an "existential crisis" over revelations that its user data fell into the hands of the Trump campaign. Whether or not the attacks on the social media giant are justified, the fact is that the Obama campaign used Facebook (FB) data in the same way in 2012. But the reaction from the pundits and press back then was, shall we say, somewhat different.
There is one other big difference: how these revelations were received by pundits and the press. In 2012, Obama was wildly celebrated in news stories for his mastery of Big Data, and his genius at mining it to get out the vote.

We were told then about how the campaign "won the race for voter data," and how it "connected with young voters." His data analytics gurus were treated as heroes.

https://www.investors.com/politics/editorials/facebook-data-scandal-trump-election-obama-2012/

This is not about whether "the Trump campaign" obtained data via Facebook.

It's about whether a) a researcher collected data for one purpose and then used it for another, b) the fact that much of the data collected was data on people who never had an opportunity to consent, and c) whether foreign operators engaged in "foreign interference".

Obama people collected about 190 million profiles. The only people who consented were the first people in the chain. For example, 1 million Obama supports agreed to let the Obama people connect to the profiles of all their friends which then sets off a chain of connections. Only the first 1 million responders (don't know the exact number) granted permission. Messages were sent, some sources claim, without full disclosure of the source i.e. it seemed like it was coming from "friends"

BTW Trump did not use the Cambridge information in the general election. He used RNC databases after the primaries. The RNC dataset was considered superior.

This is not about "The Trump campaign".

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You are using 'profile' in a very non-precise way here. If I say I'll share my contact list, and someone picks up your first, last, phone, and email, is that a "profile?"

Or is a "profile" something more like Cambridge Analyitica's dredge right down to private messages?

From my casual reading the Obama request was for "contacts" and the "profile" was quite minimal.

In 2012, the Obama campaign encouraged supporters to download an Obama 2012 Facebook app that, when activated, let the campaign collect Facebook data both on users and their friends.

According to a July 2012 MIT Technology Review article, when you installed the app, "it said it would grab information about my friends: their birth dates, locations, and 'likes.' "

The campaign boasted that more than a million people downloaded the app, which, given an average friend-list size of 190, means that as many as 190 million had at least some of their Facebook data vacuumed up by the Obama campaign — without their knowledge or consent.

If anything, Facebook made it easy for Obama to do so. A former campaign director, Carol Davidsen, tweeted that "Facebook was surprised we were able to suck out the whole social graph, but they didn't stop us once they realized that was what we were doing."
https://www.investors.com/politics/editorials/facebook-data-scandal-trump-election-obama-2012/

Were you or anyone actually upset in 2012 about " their birth dates, locations, and 'likes?'"

It sounds like that was a mild 'profile' and people were OK with it.

It sure as heck was not your private messages. It was things that are highly visible as our "output" on social media.

Do you have a real citation for CA reading private messages?

If this is true it should be a headline story on every news outlet.

Extreme claims require real evidence. Not saying it isn’t true but I would expect this to be plastered everywhere on every news site.

Unless it’s fake. And on a British tabloid.

Wired reported it as well, as "may have".

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From a 2012 Article in MIT Technology Review
Since last fall, Facebook has also been able to collect data on users’ online lives beyond its borders automatically: in certain apps or websites, when users listen to a song or read a news article, the information is passed along to Facebook, even if no one clicks “Like.” Within the feature’s first five months, Facebook catalogued more than five billion instances of people listening to songs online. Combine that kind of information with a map of the social connections Facebook’s users make on the site, and you have an incredibly rich record of their lives and interactions.

For one thing, Marlow is confident that exploring this resource will revolutionize the scientific understanding of why people behave as they do. His team can also help Facebook influence our social behavior for its own benefit and that of its advertisers
Marlow’s team is in the process of publishing results from the last U.S. midterm election that show another striking example of Facebook’s potential to direct its users’ influence on one another. Since 2008, the company has offered a way for users to signal that they have voted; Facebook promotes that to their friends with a note to say that they should be sure to vote, too. Marlow says that in the 2010 election his group matched voter registration logs with the data to see which of the Facebook users who got nudges actually went to the polls.

With regard to Cambridge Analytica
In an interview with The New York Times, Kogan admitted to obtaining private messages with his app, but said he never passed them along to Cambridge Analytica. The messages were used, Kogan said, for research about how people use emojis to convey emotions.

Cambridge Analytica also denied ever handling private messages, tweeting "GSR did not share the content of any private messages with Cambridge Analytica or SCL Elections. Neither company has ever handled such data." GSR was the company that sold Kogan's data to Cambridge Analytica; SCL is Cambridge Analytica's parent company.

Hopefully you're right.

But so far they have previously denied every single thing that was ultimately proven true.

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"The regulatory outcome will be that Facebook diverts some of its profits to campaign funds and to subsidize important political constituents."

I wouldn't be surprised to see something like the NFL's response to the SJW shakedown.

"In an unprecedented move for a major professional sports league, the NFL has proposed partnering with its players to effect social justice change, though not all players are in agreement on the proposal.

On Monday, the league submitted to players the final draft of a proposal that, according to documents reviewed by ESPN, would contribute nearly $100 million to causes considered important to African-American communities."

http://www.espn.com/nfl/story/_/id/21606390/nfl-offers-100-million-plan-social-justice-organizations-partnership-players

Is it a good thing or a bad thing for the NFL to set aside 1.6% of revenues to things important to an economically disadvantaged group which comprises 10% of the population?

It should be mentioned that causes important to African Americans in many cases are also important to others. It is possible that everyone (excluding racists) will see gains that they appreciate from that allocation, regardless of whether they might have appreciated something else more.

Everyone but racists will see gains from it? That's a pretty convoluted way to say it benefits nobody.

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If these causes are important to people, they would be able to pay for them themselves. The fact that they have to shake the NFL down for cash suggests strongly that these causes are not important to anyone.

What is more you are foolishly assuming that the SJW Hard Left actually benefits African Americans. Where is the evidence of this? Look around you. The Democrats and their agenda have devastated African American communities. More of the same is not going to help.

The prime example being Black Lives Matters. The blood libels smearing the police have resulted in the police going fetal. The refusal of the police to do their job plus the media pushing hatred has seen a spike in the murder rate. This has got so bad even Baltimore is talking about actually punishing criminals. How has any of that helped any minority community?

The best advice anyone could give minorities is that Republican-run communities are functional. Nice places to live. Democrat-run communities are crime-ridden corruption-rich dysfunctional sh!tholes. So minorities ought to be as much like Republicans as they can.

The situation involves professional athletes negotiating collectively, and something presented as part of an overall package which the players in union can vote agree/disagree with.

I have no idea about whether any of the spending will "benefit African Americans" (i.e., in the long run) outside of any employment directly related to the activities. But people who are not African Americans will get some non-negative value out of whatever they spend on, in the case that this offer is accepted.

Actually it does not look like negotiation so much as a power grab by a small number of radicals using intimidation to shake down the NFL.

But I agree most of the benefit will go to White people who run those Hard Left NGOs who will be getting most of the money. However that will make America worse and most people - of all races - will be worse off. Even Vox has noticed most gun deaths do not involve Republicans

1% ≠ 100%

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The Peltzman model of politics is highly cited but completely useless for understanding democratic politics. The model assumes that the governing party faces no competition from another party for the control of the government. Without that assumption, the model completely falls apart. I am sure that Alex is not happy with those who view drug companies as acting like a cartel or as a quasi monopoly. So don't be so accepting of the monopoly model of politics.

Reread Peltzman. Governing parties compete with each other for votes and contributions to acquire and maintain power.

It is basic economics that drug companies are given limited monopoly power (using patents) as a way to encourage R&D. I know of no economist who would disagree with that view. How monopolies will interact with governments (regulatory capture, contributions to politicians or interest groups, etc) does not imply that they will not set political parties against each other to maximize the monopoly's goals. Indeed the fact that political parties compete is why the monopoly's ability to generate votes or contributions gives the monopoly power.

There is also the whole Washington swamp theory. The political class as-a-whole is fine with R's and D's, but doesn't want a populist or reformer candidate.

No, the more powerful the government, the more incentives groups have to use government control for their own purposes (relief from government or control through government). Alternative parties are just as prone to those desires as the traditional ruling parties. In many cases, they seek one-party rule so that they can gain the benefits of the resulting monopoly power of the state to those they favor (ie look to Russia or North Korea).

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Peltzman's model does not allow for the other party offering a competing set of policies. It does not have two-party competition like the standard Downsian model. If the Downs model only had the governing party choosing policy, there would be no convergence to the median voter. Peltzman's model does not generalize to the two party competition case because it implicitly involves income distribution or redistribution and there is no political equilibrium in such cases.

You missed the point of the reference to the pharmaceutical industry. It could have been any industry. But even the pharmaceutical industry is competitive in that each manufacturer is trying to provide alternative drugs that are superior to the drugs provided by other manufacturers.

I don't know where you get that from.

"The ET, however, has evolved away from those origins toward an emphasis on the coalition aspects of politics. Here the need to balance pressures emanating from competing interests plays a central role. This formulation leaves much more room for deregulation. As long as deregulation benefits some part of the relevant coalition, it can not be ruled out as a viable policy option."

Politicians may have less control over the regulatory agencies than some might think. For example, he EPA has been able to make itself less responsive to political pressure. (Views on whether that is a good or bad thing can differ.) But that does not mean that political coalitions do not form to influence regulatory policy. How you can disagree with that, or why you think Peltzman ignores it is beyond me. The political process can be increasingly thwarted by institutional barriers, but I don't see as how that contradicts regulatory capture.

The core of the Peltzman analysis is about applying marginal analysis to regulatory analysis. Groups compete and politicians/regulators enact policies where the marginal costs to various groups of some policy equals the marginal benefit to various groups of that policy. Balancing those competing demands is what the political process does.

In general, policies where the marginal benefit are concentrated and the marginal costs are diffused are the most likely to gain political support and be enacted. That is how the political process works.

Marginal analysis treats the response of others as a function. For example, a monopolist faces a downward sloping demand curve. The insights of microeconomics do not carry over to game theory when redistribution is involved and often even when redistribution is not allowed.

Ok. With that answer I assume you haven’t had much economics past intro classes. So we can just agree to disagree

Of course, it is hard to explain complicated ideas in two or three sentences. And thus you may believe that you have a counter argument to what I have said. Instead of trying to explain why I was wrong. You responded with an ad hominem. I am curious how much economics you have had and where. Also, as a simple intellectual exercise, model two candidates each dividing $100 of income between 3 voters. Please tell me if you found an equilibrium. There is none.

If we are not speaking the same language, it is too complicated to continue the debate. Your worldview is so different that I don't see continued discussion being fruitful.

Still, I assume that by the Downsian model you are claiming that voting is irrational and, perhaps, are referring to the median voter theorem.

When it comes to regulation and voting, interest groups that are affected by the policies have a "rational" incentive to become informed.

Per Gary Becker
"Since the great majority of voters presumably do not expect to influence election outcomes, who they support is influenced disproportionately by campaign rhetoric, debates among candidates that have little intellectual content, and by other methods of persuasion that are not very informative about the candidates. I like to say that consumers put more time and effort into deciding which cereal to buy and into other small consumer choices than in gathering information on economic and other issues about presidential candidates.

But I am not claiming that voters are less “rational” than consumers of everyday products. Individuals pay more attention to what they buy than whom they vote for because what they buy has a direct and tangible effect on their wellbeing. Since the incentives to become well informed are radically different, “rational” voting implies very different kinds of behavior than does rational choice of cereals or peanut butter."

For example, people in the sugar industry have incentives to become informed and take action to affect government policy related to the sugar industry. They will take steps to impact those decisions. Consumers of sugar, say people who buy candy bars, are less likely to be informed about how government policy may affect the candy bar they are buying. They rationally choose not to become informed about sugar prices because the change in the price of the candy, for them, is trivial.

So the irrational voter argument fails because, amongst other reasons, you have asymmetric markets where some participants have strong incentives and can affect the outcome. Plus regulations are imposed through negotiation not simple yes or no votes. The ability to trade allows an almost unlimited number of potential outcomes. Those doing the trades use marginal analysis to say that if I support the sugar industry they will reward me (the marginal benefit) and candy consumers are likely to be unaware and will not punish me (the marginal cost).

The median voter fails because various interest groups are competing and essentially the gains go to the highest bidder. The voting is highly selective, people most affected by the outcome are highly motivated and people who are not affected enough to organize do not participate. Politicians can drift away from the median position if it attracts people who are willing to contribute money or votes and because the cost of that shift can often be done with little political damage on the margin.

According to Becker if the three voters can rank their preferences in a consistent hierarchy, i.e., they are rational, you can create a market that will allocate goods. It happens every day in markets across the world. If their choices are random, the "voters" can not rank preferences, or they just randomly change preferences, then the market can fail.

Becker’s paper has the exact same problem that Peltzman’s model has. It is a single-candidate model. While I believe that Becker should have received two Nobel Prizes, his work in political-economy was technically weak and marred by his ideology (in particular, unlike the way consumers are treated in economic theory, in his model voters consistently act (vote) against their own interest; I will not deal with this issue here). At about the same time as Becker and Peltzman’s articles were written, there was a significant number of mathematically more sophisticated articles on two-candidate competition (two competing candidates are an essential aspect of democracy). For example, McKelvey’s paper showed that no equilibrium exists in a multidimensional issue space even when voters’ preferences are single-peaked and voters are well informed. Hinich and his co-authors showed that in a multi-dimensional issue space with single-peaked preferences and voters who vote probabilistically, a two-candidate model yields an equilibrium. As I wrote earlier, divvying out rewards to pressure groups implicitly involves income redistribution. This creates much higher dimensionality than the issue spaces analyzed by McKelvey and Hinich and it is very hard to create equilibrium outcomes under such conditions even if we get rid of voting altogether and just consider rewarding interesting groups (you can apply the toy model I gave you to pressure group support). If it were all that easy, Hinich and others would have solved the problem and the Arrow impossibility theorem would not exist. Becker just used his intuition about economic markets and assumed that you could aggregate behavior as one does in aggregating demand. But the problem that Becker was dealing with is a hard nut to crack because unlike ordinary oligopoly theory where the behavior of firms is restricted (firms can only choose prices or quantities along a demand curve and possibly quality that determines the demand curve), the candidates can choose which pressure group to grant favors to in return for advertising dollars (or possibly in reverse). In fact, relatively recently Grossman and Helpman modeled the role of pressure groups in the context of a single-dimensional (Downsian) issue space (I note that their model also requires the uniformed to vote consistently against their own interest). This was published in the AER. Why would it have been published if Becker had already solved a much more complex pressure group model? The answer is that Becker only had a one-candidate model. By the way, if you have not guessed it by now, I am not a parson who only took a beginning course in economics as you have claimed, but a mathematical economist who does not like hand waving claims about political markets.

I had a friend a physicist who once said that he sometimes wish he had been an economist. Economist can just make a view assumptions plug it into a model and the model does what you say. I don’t know how the models you refer to invalidate the ability of multiple players to use auctions to allocate goods. Given the choice between Becker/Peltzman models that reflect the real world or the models you are using. But Thaler won a Nobel prize and I find that flawed. But you should get together with another poster who sounds a lot like you but I forgot his name

Read some Grossman Helpman and I’m beginning to think you are just punking me

This Grossman Helpman paper is much closer to the Peltzman model then what wd40 argues
http://www.nber.org/papers/w4877

May have cited wrong article. See Grossman and Helpman (1996) Electoral Competition and Special Interest Politics, Review of Economic Studies

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A big component of what this is about is that Facebook intentionally and with malice censored one group and aided another group with the intent of denying service based on a political bias. Facebook's selective censorship is unlawful and needs to be fixed. Note to Facebook; bake the cake!

Much more likely is that Facebook will provide, defacto or dejure, the US equivalent of the Chinese social credit index. Ubiquitous surveillance and data mining meets de-platforming for life.

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Which selective censorship are you referring to?

Is this about flagging/removing content that promotes hateful attitudes based on race or gender?

Or about 2012 and 2016 presidential campaigns and use of Facebook data as a) declared by official campaigns and as b) not declared by foreign third parties?

Something else?

Yeah. Diamond and Silk. They got banned for promoting hateful attitudes based on race and gender.

Race and gender is just the excuse for the Left to deplatform anyone to the right of Trotsky.

Many right wingers think it's OK for women to work (and even earn equal pay for equal work!) and that minorities are often very respectable people.

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@ "If you want understand ANY NATIONAL ISSUE it’s useful to think not about privacy or technology but about what politicians want."

yeah, this is all just standard 'Public Choice Theory' -- Peltzman adds nothing.

Politicians always pursue their own self-interest, but their incentives and constraints differ markedly from private, non-government individuals.

(and FaceBook is not a monopoly, by formal definition)

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Update: Facebook and Google's combined share of total digital ad revenues has been falling, down to about 60% in 2017 and projected to fall further this year. Only a few years ago their combined share was around 70%, and their share of the marginal dollar spent on digital advertising even higher. It's still high but not inevitable (i.e., they don't exactly have a monopoly). https://www.emarketer.com/content/google-and-facebook-s-digital-dominance-fading-as-rivals-share-grows

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What is this website's privacy policy and what do you do with my data?

Why are there cookies on this site.

"What is this website's privacy policy and what do you do with my data?"
It is private, so you can not know it.

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Don't forget the related Peltzman argument. Politicians seek to maximize two things: votes and contributions. If you want a politicians to support than you must provide one or the other.

Some years ago I interviewed for a job that required political sponsorship. I was invited to lunch for a third interview by a prominent politician's top aide. My education and experience could be quickly explained in a press release, so I was able to mark all the public checkboxes for the position. At one point I was told there were really two qualifications for the job: how many votes can you deliver or how much money could I raise. The aide then gently inquired about my possible connections to some very wealthy and generous acquaintances. I asked if I disagreed with my sponsor's views on an issue how much independence would I have. The aide asked if I was trying to be funny. That we serve our constituents ( those who provide votes and contributions) and that would be my job; not to impose my views on what should be done especially if it conflicted with my potential sponsor's public statements.

Facebook can fill both needs for politicians: deliver votes and money. Plus Facebook has the advantage of being to do both in a way that is not obvious to the general public. The manipulation of information is done at almost no cost to Facebook. The algorithms that they use for advertisers is quickly adjusted at low cost for political campaigns. Get out the vote or voter "education" can be done cheaply.

However, Facebook leaders also have an agenda. They lean to the political left and they are wealthy. One of the things they can buy with their wealth is a society that they prefer. Rather than Facebook being a profit-maximizing organization then can use their resources to shape, or buy, a world or worldview that they prefer. They are big enough that the question can become who controls whom. Do politicians have more potential control over Facebook or does Facebook have more potential power to control politicians?

At the point, everyone should watch the movie The President's Analyst.

I don't think attempts to regulate Facebook will work. Facebook will quickly dominate the regulators and, if anything, strengthen their monopoly power.

The better option is to break up Facebook and Google to encourage greater competition. Increased competition would should lead to lower profits, less power, and more diverse views.

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"...politicians use regulation to tradeoff profits..."

"Tradeoff" is a noun. What is needed here is the verb form, "trade off."

I've often wondered why Alex doesn't work on his grammar. Grammar is signaling. Signaling is important. (Tyler's grammar is generally excellent.) But this is still an excellent post by Alex.

Counter-signaling, obvs.

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Very thought provoking comment by Prof Tabarrock. thank you

Agreed. Alex's best post ever!

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Very insightful comment. What we are witnessing is a farce. Is a democracy free when all these ties bind industry to government and vice versa? Redefines choice and self-determination.

A comment I found comical this morning:
"But unless politicians realize they are allowed to make laws rather than be the kind of passive mall cops who’ve ushered us into this age of monopoly, we’ll still be in the same place years from now."

https://theintercept.com/2018/04/10/facebook-the-senate-is-afraid-to-govern-thats-great-news-for-facebook/

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This Peltzman Model sounds fine in general terms, but as everyone says, bargaining is a bit different when consumers are offering "attention" and bargaining for "services" including "privacy."

It is too much of a stretch to connect this Peltzman Model to Paul Ryan's retirement?

He says he's accomplished what he wants. Given deficit projections, the answer to that has to be "WTF man?" Unless of course, he's feathered his nest, or wants to get out of town before the s hits the fan, or some combination.

However you slice it, not a high point for "government as civics class told you it would be."

It is too much of a stretch to connect this Peltzman Model to Paul Ryan's retirement?

Yes. You clearly have no idea what Peltzman is talking about.

It is not too hard to generalize a concept like this:

"politicians use regulation to tradeoff profits (wanted by firms) and lower prices (wanted by constituents) to maximize what politicians want, reelection"

And then to think about when it breaks down.

A Congressman: "He may be an idiot, but he's still the President and leader of my party and he is capable of doing some things right," he says before conceding it's usually other people doing the right things in the President's name. "But dammit he's taking us all down with him. We are well and truly f**ked in November. Kevin [McCarthy] is already circling like a green fly circling sh*t trying to take Paul's [Ryan] job because nobody thinks he's sticking around for Nancy [Pelosi]. She's going to f**k up the cafeteria again too. [Lord's name in vain], at least I'll probably lose too and won't have to put up with that sh*t."

link

And the connection between those quotes is?

In a normal environment any congressman is happy to be a lifer, to collect the contributions, the status, and to live the high life.

He'll "use regulation to tradeoff profits (wanted by firms) and lower prices (wanted by constituents) to maximize what politicians want, reelection"

It has to be a pretty big disaster for anyone young-ish and in power to bail on that, doesn't it?

Republicans are retiring from Congress in record numbers ahead of the midterm elections, opening the door for a potential Democratic takeover.

Average Term for Congress about 9 years

The average age of Democrats House Leadership 72
The average age of Republican House Leadership 48

Republicans tend to leave office, Democrats tend to stay.

About 32 Republican House members are leaving, 12 running for higher office, 19 retiring.

15 Democrats are leaving. 8 are seeking higher office.

Republicans have rules that limit terms of committee chairman, six Republican Congressmen are leaving because of this.

Peltzman does not claim that it is easy to "use regulation to tradeoff profits (wanted by firms) and lower prices (wanted by constituents) to maximize what politicians want, reelection" Indeed the need to raise money is a pain for most. Having a President who wants to limit new regulations and unfunded mandates https://www.theatlantic.com/business/archive/2017/01/trumps-regulation-eo/515007/
cut taxes, cut spending, https://www.bloomberg.com/news/articles/2018-04-09/trump-to-attempt-cutting-back-on-1-3-trillion-spending-deal

makes it hard to bring home the pork.

Normally the power in party takes a beating during midterm elections. Running for office in such a situation is difficult. Given the politics of personal destruction that goes on in Washington, I am amazed that more don't leave.

You still don't understand Peltzman.

I think it is much simpler than that hand-waving.

In a surprise twist, the Republicans in charge of Congress made it no fun to be a Republican in charge of Congress.

It would just be easier if you wrote that you really don't understand the Economics of Regulation. Not that it isn't evident.

I personally consider every one of your personal attacks to be an admission of failure. Your mileage may vary.

Thin skinned aren't we. I stated the obvious. You try to troll about something barely related. I say it isn't really related to the main topic, Economics of Regulation, you continue to throw a series of comments at the wall. I give up because you clearly can not, or will not, address the main topic.

So back to the start
Is it too much of a stretch to connect this Peltzman Model to Paul Ryan's retirement?
Yes. You clearly have no idea what Peltzman is talking about.

Ignore the digression in between.

My topic basically was that theory is fine, but practice is messier, especially in these times.

I think you had to insult me as your only response because you know I'm right.

You even alluded to it, saying that the theory doesn't say everything is easy.

You were just weirdly protective of something. What, is it the idea that in a parallel world Congressman are successfully balancing monopoly and consumer demands for their own benefit?

Bottom line is that if the theory does not apply to this world, it does not apply to this world.

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By the way, I link to this:

"So far, more than three dozen Republican House members and three senators have announced that they will not be running for re-election in November — the highest number since World War II, according to the Brookings Institution. "

And you just hand-wave that this is normal.

Put up something serious, and something better than insult.

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BTW, let's stipulate that our American ideology prevents us from having strong privacy laws.

That may be more self-inflicted wound than strength.

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I had Peltzman as a professor at UofC back in the 80s. Excellent. Glad to see his name pop up!

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As far as politicians not wanting privacy, it's not just politicians: Transparency is typically a good thing for the powerful in general. A well known hedge fund happens to ask people to rate everyone else constantly in a very transparent internal website that all employees have access too: Every rating that everyone else gives is public, as the fund talks about how honesty and transparency are great.

In practice though, honesty is expensive for anyone that is low status: Retaliation from those with more power happens just as one would expect. Therefore, what actually happens is a whole lot of fiction, and an approach to feedback that would be at home in East Germany. The firm might be about as far right as SV firms are far left, but either way, encouraging people to speak, while having unspoken list of opinions that are intolerable is en vogue.

Historically speaking, the higher your status, the more eyes were on you, and the harder was to keep secrets. A world where this stops being true quickly becomes a more authoritarian world.

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Alex: "Facebook is a very profitable monopoly that doesn’t benefit politicians very much. "

Alex flunks economics in competition theory.

Unless the MR blog and Alex are just branches of Facebook.

Facebook is no more a monopoly than Honda sedans monopolize personal transportation vehicles.

Zuckerberg ISS clearly not schooled in economics because he failed to point out that a Chevy is not a Ford, so Ford is a monopoly when it comes to Ford, but Chevy and many other vehicle makers offer a spectrum of close substitutes. Today the number one vehicle used for hauling one or two people is a pickup truck. And in pickup trucks, Ford and GM are considered by advocates to have separate monopolies. Ie, a GM truck is never equal to an F-150. Etc.

Facebook is a monopoly only for Facebook just as Ford is a monopoly for Ford.

For hundreds of people, MR is a superior substitute for Facebook. Or nasaspacenews.com. While both use some ad insertion vendor to support their social media, very few know if it's Facebook, Google, Yahoo, or multiple others. Plus, switching from one ad insertion vendor is possible, except for the costs of integrating the tools used to operate social media tools with their ad insertion tools, plus switching contracts. Classic "barrier to entry" cost.

No

"Facebook’s revenues topped $12.7bn for the quarter and the company made a profit of $4.26bn – once again demonstrating the company’s dominance in social media advertising. The social platform will capture 18.4% of the $266bn global digital ad market this year, according to eMarketer, making it the number two ad publisher behind Google, which has a 31.3% share.

Facebook’s operating profits would have been $7.35bn except for a $3.19bn tax charge, most of which stemmed from the Trump tax overhaul. It now has 2.13 billion monthly active users and 1.4 billion who use it daily."

https://www.theguardian.com/technology/2018/jan/31/facebook-profit-mark-zuckerberg

Perhaps a more accurate description is that Google and Facebook form an Oligopoly (or duopoly) that acts like a monopoly. They charge prices significantly above MC. They do not compete on the basis of price but by branding and services. People who use their services are not customers but rather raw ingredients that they repackage and sell to their customers (advertisers.) In a competitive market, they might have to pay the users of their services for the right to sell their information to advertisers. Or they would adjust the services they provide based on the degree to which users are willing to sell access to them.

The auto industry is more like an oligopoly that competes like perfect competitors. Their scale gives them some barriers to entry. But not enough obstacles to keep out competitors (in part because unions took the excess profits in the auto industry and encouraged the entry of lower cost non-union producers). Once you have excess production, combined with high fixed costs, you see robust price competition.

The two industries are playing very different games. I don't think Alex is the one flunking this course.

The auto industry is more like an oligopoly that competes like perfect competitors

Rather like monopolistic competitors

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"The regulatory outcome will be that Facebook diverts some of its profits to campaign funds"

Politicians use campaign funds primarily to buy ads. Zuckerberg is already contributing (in kind) to politicians' campaigns just by showing up to the hearings. He draws eyeballs to the hearings, which allow politicians free camera time. That's why they keep reading pre-scripted questions that he has already answered many times. They also use their allotted time to promote legislation that they are currently sponsoring and highlight legislation they have sponsored in the past.

Ironic: Facebook users contribute their eyeballs for free, which Facebook monetizes by selling to adverstisers. Zuckerberg contributes his fame to Congress for free, which Congress uses to get free air time.

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This is basically my historical reading of what happened to Microsoft. They contributed almost nothing prior to their regulatory shakedown on the basis of being a monopoly. Those contributions went way up afterward. Even as a Mac guy in the tech industry who despised M$ at the time, it seemed obvious.

https://www.nytimes.com/1999/11/07/us/us-versus-microsoft-the-strategy-how-microsoft-sought-friends-in-washington.html

People forget that time. MS actually faked evidence in federal court. They made a video saying it was "impossible" to remove IE from Windows. That video was found to be just edited in post-production to make it look that way. And then suddenly the judge (who didn't like that lying video) was suddenly removed (because he was 'biased' by the lie) and everything was settled quickly.

My personal guess is that someone at MS said to the US government "um, you know we can access any Windows system in the world, right?"

And the government said "alrighty then."

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Facebook has lots of users because Facebook has lots of users. For those commenters who believe there are alternatives to Facebook, I remind them of Yogi's dictum about a popular restaurant: nobody goes there anymore, it's too crowded.

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