82 U. CHI. L. REV. 23 (2016)
Privacy and Markets: A Love Story
Occasionally market participants depart from the traditional market criteria of price and quality. A conscientious consumer might strongly prefer her coffee to be “free trade” or a diamond to be “conflict free.” A certain kind of religious flower shop owner might refuse on moral grounds to provide flowers to a wedding with two grooms. Economists would chalk these departures up to “exogenous preference”—attributes that the market can take into account. But imagine if consumers and businesses knew everything. Not just the circumstances under which a product was made or the politics of its seller, but whether each other market participant supports a rival sports team, believes in God, or bakes erotic cakes on the weekend. In other words, imagine a marketplace without privacy. Would such a marketplace be desirable? Would it be efficient? Would the market mechanism work at all if price and quality took a backseat to salient but arguably extraneous information about market participants? This Article examines the complex relationship between privacy and markets. In so doing, it rejects both law and economics’ skepticism toward privacy and the hostility many privacy law scholars have toward markets. The thesis of this Article is that privacy and markets are in important ways sympathetic. To paraphrase contract theorist Charles Fried, it is not that privacy will help markets work better, but that the market mechanism quietly assumes and relies upon privacy to work in the first place. And the reverse is true as well. The Article proceeds as follows. After defining terms, Part I lays out the law and economics case against privacy, including its basis in economic thought more generally. Part II canvasses the literature responding to economic skepticism in the privacy law literature. Some scholars mount an insider critique, accepting the basic tenants of economics but suggesting that privacy actually increases efficiency in some contexts, or else noting that markets themselves will yield privacy under the right conditions. Others critique economic thinking from the outside. Markets “unravel” privacy by penalizing it, degrade privacy by treating it as just another commodity, or otherwise interfere with the values or processes that privacy exists to preserve. Part III tells the love story from the Article’s title. I develop here a novel account of the relationship between privacy and markets, positioning the two concepts as sympathetic instead of antithetical. Neither insider nor outsider, the framework understands privacy as a crucial ingredient of the market mechanism, while simultaneously demonstrating how markets enable privacy to achieve its most important functions. It turns out opposites attract, just as Hollywood has been telling us all along.