Data sellers can maximize profits by tailoring supplemental signals to buyers with private information. Using a real-world example of a local bakery optimizing ad spend through platforms like Google and Facebook, it becomes clear that tech giants such as these hold vast troves of data, acting as monopolists due to the depth and breadth of their datasets.
In Xueying Zhao’s job market paper, Tailoring Data for Profit, the mechanism involves Google/Facebook designing a menu of ad targeting options that tailor supplemental data to the bakery’s private insights (e.g., users nearby who recently searched for “bakery”). Techniques like lookalike audiences used by Cambridge Analytica during the Brexit referendum become more sophisticated with broader datasets. This highlights the importance of information markets and their governance in terms of consumer welfare.
While consumers may feel they are not getting ahead in life (think: asset accumulation), they are “better off” in consumption terms. Policymakers might appreciate this as it maximizes GDP, but negative externalities, health, and environmental impacts are ignored.
The debate about the transfer of consumer surplus to profits that do not generate tax revenues is ongoing. Countries like the UK and France have pushed for a digital services tax (DST) starting in 2016, while the absence of a global accord on minimum taxation poses challenges. Under President Trump’s administration, the U.S. extended tax cuts, making it easier for big tech firms to repatriate profits held overseas.
Countries should push for a DST with revenues based on actual transactions rather than net profit. This collective effort can ensure that effective fiscal policies are implemented, preventing “divide and rule” tactics. The complex geopolitical backdrop of these discussions makes it difficult to implement such policies effectively.
Furthermore, the use of data in society raises fundamental questions about fiscal policy and its potential to deploy more targeted interventions efficiently, especially in addressing climate action/crisis. This connects with my other papers on the informational boundaries of the state, performative state capacity and climate (in)action, emphasizing skills as a key issue stemming from austerity and demographic changes in much of Western Europe.