e-Globalization and Trade Agreements

Abstract

The global success of online search engines and social media is due in part to their free access and high level of quality. However, these features are supported by a business model that exploits user data to provide targeted advertising services to third parties. This raises questions about the potential impacts of this business model on global and national welfare. This study aims to examine how a global monopoly platform might balance privacy and service quality in light of these concerns. Results indicate that when a platform operates a free service model, it tends to overuse personal information and under-invest in quality compared to a global planner. However, global welfare can be improved through policy interventions such as enhanced privacy protection. Furthermore, this study suggests that when privacy policies are set at the national level, large countries tend to align with the global interest, thanks to a "Brussels effect" where a global monopoly platform will improve privacy protection across all its markets in response to a policy change in one country. This implies that the need for international trade agreements covering privacy protection is reduced. However, we find that the use of ad tech taxes is an area where international cooperation is needed due to the potential negative impacts on other countries.