Profiling by powerful tech firms risks undermining consumer choice

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The FINANCIAL —  Behavioural targeting online by dominant ad-tech businesses risks the welfare of consumers, requiring stricter enforcement of current laws, according to new research from experts in ethics and law from the Oxford Internet Institute.

OII researchers, Dr Johann Laux, Dr Brent Mittelstadt, and Associate Professor Sandra Wachter warn about advertising based on online behaviour (known as Online Behavioural Advertising, or OBA). It makes assumptions about preferences and interests, based on data in social media profiles and online browsing histories, and means consumers could be paying higher prices and/or missing out on products and offers that might be of interest, University of Oxford notes.

In ‘Neutralising Online Behavioural Advertising’, the researchers say EU consumer law, specifically the Unfair Commercial Practices Directive (UCPD), could be utilised to help mitigate the negative impact of online behavioural advertising on consumer choices.

Lead author Dr Laux says, ‘Online behavioural advertising relies on assumptions being made about peoples’ interests and affinities to target consumers based on their online behaviour. This technology can improve the matching of adverts with consumer preferences, but it also poses risks to consumer welfare through offer discrimination and exploitation of their cognitive errors whilst online.’

While profiling can help companies better target potential consumers, Google’s and Facebook’s ad-tech market power gives advertisers potential to exploit online consumers in their purchasing decisions. For example, extrovert investors have been linked with a willingness to pay higher prices for financial assets and buy more financial assets, even when they are overpriced.

Online advertising could exploit this consumer behaviour insight and target someone, whom the advertiser believes to be in an extroverted state of mind, with an offer to invest.

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The consumer might well believe that this is a good moment to invest, even if the investment is overpriced.

Dr Laux says, ‘The EU has recently made sensible proposals for new laws to regulate digital platforms holding market power. However, a quicker way to protect consumers today would be to rely on current consumer law and give it an interpretation that accounts for the dominance of a few companies in the ad-tech industry. The legal possibility is there, as we suggest in our new paper.’

The paper highlights that online behavioural advertising, combined with the market power of dominant technology firms, can lead to consumers to see fewer non-personalised adverts which might be relevant, so missing out on certain products and services.

The team argues that judges and national consumer authorities should consider how the concentration of market power within the ad-tech industry affects the transactional decision making of behaviourally targeted customers, University of Oxford notes.

Dr Laux adds, ‘At the moment, there are a relatively small number of platforms providing online advertising services who hold significant market power. This is leading to consumer choice, a core component of EU consumer law, being threatened.’

Professor Wachter maintains, ‘Dominant market actors, which engage in the exploitation of consumers’ inferred cognitive dispositions, should be under stricter assessments of EU consumer law, particularly in digital markets.

‘In our paper we’re calling for a case-by-case analysis with a heightened scrutiny of the market environment that online behavioural advertising operates in. Our approach builds on existing provisions in EU consumer law and argues that the Unfair Commercial Practices Directive can play a constitutive part in mitigating consumer harms created by online advertising practices.’

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The Oxford Internet Institute is a multidisciplinary research and teaching department of the University of Oxford, dedicated to the social science of the Internet.

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