From Federal Trade Commission Privacy Law and Policy, Chapter 12:

Professor Ross Petty highlighted that some of Posner’s objections reflected unstated assumptions and that recognizing these help us see the deficits of the Posner critique.27 For instance, Posner dismissed the Agency’s bait-and-switch advertising work without explaining his underlying objection to policing such marketing techniques. For Posner, bait advertising was merely a good-natured way to attract consumers to the store.28 In recent years, bait-style advertising has become the main tool for information-intensive companies to pry personal information from customers.

When Posner wrote his critique, bait advertising was rightly a major concern of the Commission. By the 1950s, the Commission had developed a nuanced under- standing of bait and misleading-discount issues. It distinguished between loss leaders, which are low-priced goods that are readily sold, and bait advertisements, for products that the seller would sell only reluctantly.

Posner also rejected the idea that companies would systematically abuse the poor, in part because of “the absence of theoretical reasons for expecting fraud to be rampant in sales to the poor.”29 While Posner in this early work characterized consumer poverty initiatives as based on anecdote and thin data, he overlooked the Commission’s then-recent Washington DC initiative. In it, the FTC discovered that bait advertising was one of the principal deceptive tactics employed against poor consumers in the marketplace.30 The FTC found that consumers would be told the product was sold out or was only available at another store branch. This was a major imposition for poor consumers without cars.

In Posner’s dismissal of the bait advertising problem, we see the limits of his and derivative critiques of the FTC. To borrow Arthur Leff’s phrase, Posner’s critique suffered from a kind of tunnel vision.31 A broader lens brings into focus problems of transaction costs, lock-in, collective action problems, and decision-making biases that lead consumers to uneconomical decisions. Moreover, the electronic market- place, although presented as a forum where “competition is a click away,” has intensified these problems in some ways. Remarkably profitable fraud schemes rely on the basic premise that individuals are busy and may not be entirely focused on details. Thus, one can capture credit card numbers and make millions in charges for products that are never shipped,32 or fake fees can be invented that the consumer assumes has to be paid.33 Perhaps no rational person should pay these charges, yet consumers do.34

Bait and switch also provides a framework to think about information privacy problems. The website that lures consumers with various free services or other promises but that later switches and adopts privacy-invasive practices35 is now a trope in our economy. The switch toward privacy invasion is made possible because of the kinds of consumer behaviors and information economics that exist outside some “tunnels.” These behaviors include the reliance on brand instead of more objective factors in decision-making, the power of network effects, lock-in, and the absence of viable privacy-friendly alternatives.

Facebook provides a good example of digital bait. What was innovative about Facebook in 2004? Several other social networks existed with similar information- sharing features and profile linkages. The problem with social networking at the time came from MySpace’s messy design, the ability of undesirable users to contact and troll others, and network outages that crippled rival network Friendster. Facebook’s real innovation was its marketing, not its technology. The company created a social network based around trusted, existing social groups such as the students of a specific college. It initially was premised on exclusivity, leveraging the reputation of the Ivy League. But as users joined, it relaxed membership requirements, from top-tier private colleges to, eventually, anyone.

Facebook is an information-age bait and switch. Having lured users into its network, it substituted the advertised product for another. The company changed its disclosure settings, making user profiles dramatically more public over time, while masking its own economic motives36 with claims that users wanted to be “more open.” By the time Facebook made its major privacy changes in 2009, it had such a command of the market that users could not defect. Since then, thoughtful, well-designed alternatives to Facebook have been released. Yet these efforts always fail because of the power of Facebook’s network and switching costs.

Google’s history too could be seen as a policy bait-and-switch. Google entered the search engine market wearing its opposition to obtrusive advertising and to advertising-influenced search results on its sleeve. The company’s founders promised a revolution in both search and advertising. Google even presented its search service as more privacy-protective than competitors because it did not take users’ browsing history into account when delivering search results.

Today, it seems that Google’s advertising policy is in a counterrevolutionary period. It quietly started using behavioral data in search without telling the public. It runs paid search ads prominently at the top of organic search results – mimicking the very thing it considered evil in the 1990s. Google even uses television-like commercials. But these are more invasive than those on television because Google’s technology tracks the user and can tell whether the user is watching. Prior to the internet, one could always go to the restroom during the television commercial break. Someday soon, will Google watch users through their webcams and pause ads when the user visits the bathroom or averts their gaze?

Both Facebook and Google are a kind of privacy long con. The services roped users into a relationship that was promised to be different than competitors. Over time, both companies changed policies and mimicked their competitors. Just as the FTC developed expertise to address the bait-and-switch tactics of retailers in the 1950s, today’s agency needs to focus on the modern version of this problem. Modern privacy bait-and-switches occur over longer periods of time and leverage network effects and lock-in.

  • 27  Ross D. Petty, FTC Advertising Regulation: Survivor or Casualty of the Reagan Revolution?, 30(1) AMERICAN BUSINESS L. J. 1 (1992).
  • 28  Compare Arthur Leff: “Once there you had already spent time, labor, and money to go there rather than elsewhere. That you got a ‘fair’ deal there means little; you were defrauded of the ‘sunk cost’ of going there rather than elsewhere the minute you went.” ARTHUR ALLEN LEFF, SWINDLING AND SELLING (1976).
  • 29  Richard A. Posner, The Federal Trade Commission, 37(1) UNIV. CHI. L. REV. 47 (1969).
  • 31  Arthur A. Leff, Economic Analysis of Law: Some Realism about Nominalism, 60 VIRGINIA L. REV. 451 (1974).
  • 32  FTC v. Sun Spectrum Communications Organization, Inc., No. 03-8110 (S.D. Fl. 2005).
  • 33  FTC v. AmeriDebt, Inc. et al., No. PJM 03-3317 (D. Md. 2014).
  • 34  FTC v. API Trade, LLC et al., No. 110-cv-01543 (N.D. Ill. 2010).
  • 35  Professor Paul Ohm has termed this the privacy “lurch.” Paul Ohm, Branding Privacy, 97 MINN. L. REV. 907 (2013). PAOLA TUBARO, ANTONIO CASILLI, & YASAMAN SARABI, AGAINST THE HYPOTHESIS OF THE END-OF-PRIVACY. AN AGENT-BASED MODELLING APPROACH TO SOCIAL MEDIA (2014).