Zero-price digital services — search engines, social networks, browsers, and mobile operating systems — are paid for by end users in personal data and attention rather than money. Competition authorities in the USA and the EU nevertheless need to define relevant markets, and the standard quantitative instrument for this, the SSNIP (hypothetical monopolist) test together with critical loss analysis, presupposes an observable positive consumer price. Jarman and Örsal (2020) identified as an open question the construction of robust, generalizable monetary proxies or valuation procedures for heterogeneous categories of personal data and for attention as an economic input, so that adapted SSNIP/critical-loss frameworks can be applied with defensible counterfactuals in zero-price markets, together with a specification of the firm-internal data access competition agencies would need.

Background

A large share of the digital economy supplies services to end users at a monetary price of exactly zero: search engines, social networks, browsers, maps, and mobile operating systems. These are typically two-sided or multisided platform businesses — they serve distinct user groups (e.g. consumers and advertisers) whose demands are interlinked through indirect network effects, meaning that participation on one side makes the offer more valuable on the other — and the zero-price side is monetized through advertising targeted using the personal data users disclose and the attention (measured as the viewing time users spend attending to the service) they supply. Economists therefore describe the transaction as barter: users pay in data and attention rather than in money.

Relevant market definition is the gateway step of antitrust analysis in both the USA and the EU: before market power, dominance, or merger effects can be assessed, the enforcer must delineate the group of products over which a hypothetical monopolist could profitably exercise power. The standard quantitative instrument is the SSNIP test (Small but Significant Non-transitory Increase in Price), a form of the hypothetical monopolist test: the candidate market is the smallest set of products such that a hypothetical profit-maximizing monopolist over that set would impose a small but significant non-transitory price increase (conventionally 5–10%). Its arithmetic core is critical loss analysis: with relative price rise ss and price–cost margin mm, a price increase is profitable only if the resulting actual loss of sales stays below the critical loss s/(m+s)s/(m+s), so the test reduces to comparing the critical loss with the demand elasticity implied by substitution to rival products. Both the test and the critical-loss computation presuppose an observable positive price and a measurable margin. At a zero consumer price this machinery has no input: there is no price to raise, no margin on the user side, and consumer cost takes the form of data disclosure and attention burden, which are neither observed nor priced.

Proposed adaptations replace the monetary price with the non-monetary consideration. In the SSNIC variant (Small but Significant Non-transitory Increase in Cost), the 'cost' the hypothetical monopolist imposes is an increased data or attention requirement; in the SSNDQ variant (Small but Significant Non-transitory Decrease in Quality), quality — including privacy, data security, and advertising load — is degraded. Both variants require a defensible way to express data and attention on a common quantitative scale, ideally a monetary-equivalent valuation, so that profit calculus and substitution analysis remain meaningful. The policy stakes are concrete: the German Federal Cartel Office (Bundeskartellamt) Facebook proceeding treated extensive data collection as the consideration users paid for a 'free' service, while US enforcement has largely retreated to qualitative practical indicia; and ex-ante regulation such as the EU Digital Markets Act now addresses several of the concerns that market definition could not reach.

The valuation building blocks are themselves unsettled. The behavioral economics of privacy finds that willingness-to-accept (WTA, the compensation demanded to give something up) dramatically exceeds willingness-to-pay (WTP, the amount paid to obtain it) for the same personal data, an endowment-type anomaly that destabilizes any single monetary proxy; demand also behaves anomalously exactly at zero price (the 'zero-price effect'); and large-scale incentive-compatible choice experiments — experiments whose payment structure rewards truthful choices — can measure monetary valuations of free services for well-being accounting but have not been connected to antitrust market definition and value the service as a whole rather than its data and attention components. Within competition scholarship, Newman's foundational work argued the SSNIP test is structurally unworkable in zero-price markets and advocated qualitative reorientation; the OECD produced a taxonomy of quality-competition dimensions without validated monetary proxies; and Nakamura and Ida demonstrated a conjoint-analysis implementation of the SSNIC test — conjoint analysis being a survey method in which respondents trade off product attributes, here including hypothetical charges, so that attribute-level monetary valuations can be estimated — for a single market (free messenger services) with explicit network-effect adjustments. What no work has delivered is a robust, generalizable valuation procedure for heterogeneous personal-data categories and for attention that agencies could actually run inside SSNIP/critical-loss market definition, together with the data-access powers needed to obtain its inputs.

Problem Statement

This problem comprises three sub-questions concerning the non-monetary consideration exchanged in zero-price markets. (i) How can a robust, generalizable monetary proxy or valuation procedure be constructed for heterogeneous categories of personal data? (ii) How can a robust, generalizable monetary proxy or valuation procedure be constructed for user attention as an economic input? (iii) What firm-internal data must competition agencies be able to access to run such analysis? Sub-questions (i) and (ii) are what allow adapted SSNIP/critical-loss (hypothetical monopolist) market-definition analysis to be applied to zero-price services with defensible counterfactuals about substitution. The question is confined to the market-definition core: it does not include the separately pursued strands of causal attribution of tying and pre-installation practices, standardized disclosure format design, or the calibration of remedies such as choice screens and mandatory paid alternatives.

References

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