A bipartisan data-privacy law could backfire on small businesses − 2 marketing professors explain why

There’s also a trade-off between privacy and freedom from discrimination, particularly against marginalized groups. Algorithms have been known to inadvertently discriminate. For example, one study showed that women were less likely than men to be served ads for job opportunities in STEM careers. That seems unfair.

Regulators, including the framers of the American Privacy Rights Act, have prescribed that firms should limit the data they collect only to what is reasonable and necessary, minimizing information about race, gender or other protected class attributes. But without that information, how will regulators and firms audit data-based marketing algorithms for unintended discrimination?

Finally, there’s a trade-off between privacy and innovation by sellers in the marketplace. Many small brands exist because digital marketing allows them to create sustainable businesses at a small scale without giant media budgets. Digital advertising costs a fraction of what’s needed for traditional television campaigns, saving small U.S. entrepreneurs US$163 billion annually. Small brands benefit more from accurate targeting than the big brands with broader appeal.

A growing number of studies show that privacy regulations may slow innovation and reduce the competitiveness of markets. This is especially harmful to those same small businesses and entrepreneurs that benefit most from being able to accurately target diverse consumers.

Recently, privacy advocates started attaching the label “corporatists” to those who argue for benefits of personalized marketing. Ironically, it’s small businesses that benefit most from personalized marketing, as our report for the Marketing Science Institute shows.

Giants like Unilever and Nike gain competitive advantage from privacy regulation and changes to platform privacy policies that dramatically raise small businesses’ costs of acquiring new customers, and giants like Amazon and Walmart gain new appeal as ad platforms. Similarly, studies show that GDPR boosted Google’s and Facebook’s market dominance in Europe and disproportionately increased privacy compliance costs for smaller firms.

To be sure, we believe there’s value in the bill being crafted in Congress to protect consumers’ right to privacy. The May markup included carve-outs for small businesses, for example, but without considering how they rely on others’ data for customer acquisition. In June, divisions between Republicans and Democrats led to canceling a markup session.

In our view, Congress would be wise to use the current impasse to carefully consider how the proposed law would affect smaller sellers and disadvantaged consumer groups.

John Lynch served as Executive Director of the Marketing Science Institute, a nonprofit think tank founded in 1961 to support academic research that advances the science of marketing.

Jean-Pierre Dubé consults for Amazon.com.