Evident Internet Market Failure to Protect Consumer Welfare -- White Paper

Below is the executive summary of my new white paper, “Internet Market Failure to Protect Consumer Welfare,” which can be accessed here.

It is a timely and relevant submission to two different and current U.S. Department of Justice efforts to learn more about the impact of Internet-related issues.


1.      Submission for: the U.S. DOJ Cyber-Digital Task Force June 2018 Report to the Attorney General
 Tasked to “…ensure that Internet-based technologies remain sources of enrichment, rather than becoming forces of destruction and vectors of chaos;” and


2.      Submission for the U.S. DOJ Antitrust Division 5-31-18 Antitrust Roundtable on Anticompetitive Regulation which “will assess the consumer costs of anticompetitive regulations.” 

A White Paper

Evident Internet Market Failure to Protect Consumer Welfare

Utopian Internet Policy of Amoral Authority & Asymmetric Accountability Legalizes Online Civil Illegality, which Legally Inverts Normal Market Incentives, to Not Protect Consumer Welfare, Innovation, Choice, and Quality. Thus, Government Policy Failure Causes Internet Market Failure for Protecting Consumer Welfare, Security, Privacy & Honesty.


Executive Summary

The purpose of this white paper is to document it is evident there is Internet Market Failure to protect consumer welfare

The simplest proof is the answer to this question: Why can American consumers expect safe and honest consumer products, food, drugs, vehicles, planes, etc. and privacy and honesty in offline health care, education, financial services, and communications, but can’t expect Internet platforms, data, devices, software, apps, sites, content, AI, AR, cryptocurrencies, etc. to be safe, secure, private, or honest?

The longer proof is documented here, via a Precursor causation model and empirical evidence of market failure and consumer harm.

The Wild West Internet’s evident dearth of market incentives to protect online consumers’ privacy, data, security, and well-being speak loudly. On the Internet there is little consumer expectation of privacy, security, safety, or honesty -- the exact opposite of what consumers expect in the offline free market.

This is NOT a problem of Internet technology or innovation, but a problem of Internet policy and law.

The root cause of this Internet market failure of minimal market incentives to protect consumer welfare is U.S. Internet policy’s utopian Section 230 provision in the 1996 Telecom Act. Its implicit utopian legal presumption was that Internet technology warranted extraordinary legal immunity from civil liability and responsibility, because Internet technology best solves the world’s problems, and because the Internet was only a force for good and not evil. Evidently, Internet policy’s utopian promise has yielded many Internet dystopian results.   

Section 230 is a 1996 Federal law that immunizes corporate illegality online, and de facto encourages online irresponsibility, amorality, dishonesty, negligence, and consumer endangerment. In 2018, Congress had to pass FOSTA to override Sect. 230’s sweeping online immunity to legally be able to prosecute long-known online child sex-traffickers. That travesty is only the tip of this Sect. 230 iceberg.

In practice, Sect. 230 effectively absolves in advance the guilt, responsibility, and consequences, of much Internet-enabled civil wrongdoing, and which in turn inverts the intrinsic moral nature of America’s justice system, from one where under rule of law some acts are determined wrong and illegal, to the current Wild West Internet, where most anything goes, and what’s normally wrong and considered consumer harm offline, is ignored, tolerated, and even celebrated as right and good online.

In inverting the interests of justice to online civil injustice, Sect. 230 selectively denies: equal protection under the law, recourse, due process, deterrence, justice, order, public safety, and rule of law -- to much of the online dimension of America.

In absolving in advance Internet platforms from liability for operating in ways that enable consumer endangerment, Section 230 also inverts market incentives from protecting consumer privacy and security to exploiting consumer privacy and security, by legally minimizing the market risk and maximizing the market opportunity for disregarding consumer’s privacy, security and well-being.

Cumulatively over time, government policy failure has systemically inverted the market incentives that have aggregated to cause the current Internet market failure, where consumer privacy, data protection, safety, and security are devalued, and competed around dramatically less online than offline.

Government failure in, yields market failure out. Utopian legal inputs yield dystopian societal outputs.

Please consider, if there is no government or market failure at work…


1.      Why is no computer, device, network, or entity safe from online hacking?


2.      Why are there minimal incentives, duties, or expectations to write secure computer code, or to make secure equipment, devices, software, or apps – to protect American consumers?


3.      Why are Americans’ identities, privacy, data, and property so unsafe, nonsecure, or unprotected online in America?


4.      Why are there minimal government efforts and market forces to protect minors from online harms?


5.      Why is there minimal government or market consequence for: facilitating ISIS terrorist recruitment online? Live online broadcasting of murder, rape and torture? Or treating consumers as dehumanized “products” to be tracked, and lab rats to be tested, addicted, and manipulated by design?  


6.      Why is the integrity, civility, trustworthiness, and accountability of America’s key democracy processes -- elections, news, journalism, social media, organizing, and digital advertising -- in question?


7.      Why do brands have to worry for the first time that digital advertisers may endanger their brands with brand-unsafe ad placements?


8.      Why have most U.S. Fortune 500 companies had their intellectual property and trade secrets stolen online by China?


9.      Why don’t U.S. consumer protection agencies -- the FTC, FCC, CPSC, CFPB, FDA, SEC, and CFTC – have legal authority to protect Americans from Internet-originated harms?


10.   Why must American consumers depend on three unaccountable, conflicted, monopoly-bottleneck, Internet platforms for their access to accurate information for much of America’s consumer economy?


11.   Why over the last five years have the annual revenues of Google, Amazon, and Facebook (GAF) grown 42 times faster than the other 497 companies in the Fortune 500?


12.   Why does the government require operators of offline financial and commodity exchanges to be honest brokers and to not front-run, self-deal, or abuse inside information, and to protect private fiduciary information, but does not require Internet winner-take-all intermediary platforms to operate honestly and responsibly towards others?

Forewarned is forearmed.


Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy specializing in how the Internet affects competition, markets, the economy, and policy, for Fortune 500 companies, some of which are Internet platform competitors. He is also Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. Cleland has testified seven times before the Senate and House Antitrust Subcommittees on antitrust matters. Overall, eight different congressional subcommittees have sought his expert testimony a total of sixteen times. When he served as an investment analyst, Institutional Investor twice ranked him the #1 independent analyst in communications. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.”

Precursor LLC Research Series on Asymmetric Accountability Harms

Part 1:   The Internet Association Proves Extreme U.S. Internet Market Concentration [6-15-17]

Part 2:   Why US Antitrust Non-Enforcement Produces Online Winner-Take-All Platforms [6-22-17]

Part 3:   Why Aren’t Google Amazon & Facebook’s Winner-Take-All Networks Neutral? [7-11-17]

Part 4:   How the Google-Facebook Ad Cartel Harms Advertisers, Publishers & Consumers [7-20-17]

Part 5:   Why Amazon and Google Are Two Peas from the Same Monopolist Pod [7-25-17]

Part 6:   Google-Facebook Ad Cartel’s Collusion Crushing Competition Comprehensively [8-1-17]

Part 7:   How the Internet Cartel Won the Internet and The Internet Competition Myth [8-9-17]

Part 8:   Debunking Edge Competition Myth Predicate in FCC Title II Broadband Order [8-21-17]

Part 9:   Power of Facebook, Google & Amazon Is Issue for Left & Right; BuzzFeed Op-Ed [9-7-17]

Part 10: Google Amazon & Facebook’s Section 230 Immunity Destructive Double Standard [9-18-17]

Part 11: Online-Offline Asymmetric Regulation Is Winner-Take-All Government Policy [9-22-17] 

Part 12: CDA Section 230’s Asymmetric Accountability Produces Predictable Problems [10-3-17]

Part 13: Asymmetric Absurdity in Communications Law & Regulation [10-12-17] 

Part 14: Google’s Government Influence Nixed Competition for Winner-Take All Results [10-25-17]

Part 15: Google Amazon & Facebook are Standard Monopoly Distribution Networks [11-10-17]

Part 16: Net Neutrality’s Masters of Misdirection [11-28-17]

Part 17: America’s Antitrust Enforcement Credibility Crisis – White Paper [12-12-17]

Part 18: The U.S. Internet Isn’t a Free Market or Competitive It’s Industrial Policy [1-4-18]

Part 19: Remedy for the Government-Sanctioned Monopolies: Google Facebook Amazon [1-17-18]

Part 20: America Needs a Consumer-First Internet Policy, Not Tech-First [1-24-18]

Part 21: How U.S. Internet Policy Sabotages America’s National Security [2-9-18]

Part 22: Google’s Chrome Ad Blocker Shows Why Ungoverned Shouldn’t Govern Others [2-21-18]

Part 23: The Beginning of the End of America’s Bad “No Rules” Internet Policy [3-2-18]


Part 24: Unregulated Google Facebook Amazon Want Their Competitors Utility Regulated [3-7-18]

Part 25: US Internet Policy’s Anticompetitive Asymmetric Accountability - DOJ Filing [3-14-18]

Part 26: Congress Learns Section 230 Is Linchpin of Internet Platform Unaccountability [3-22-18]

Part 27: Facebook Fiasco Is Exactly What US Internet Law Incents Protects & Produces [3-26-18]

Part 28: How Did Americans Lose Their Right to Privacy?  [4-4-18]

Part 29: The Huge Hidden Public Costs (>$1.5T) of U.S. Internet Industrial Policy [4-15-18]

Part 30: Rejecting Google School of No-Antitrust Fake Consumer Welfare Standard  [4-20-18]

Part 31: Why New FTC Will Be a Responsibility Reckoning for Google Facebook Amazon [4-27-18]

Part 32: New FTC Faces Same Unfair Competition Problem with Google Amazon Facebook [5-6-18]

Part 33: The U.S. Needs Network Reality Policy [5-15-18]

Part 34: “How Did Google Get So Big?” Lax Bush & Obama FTC Antitrust Enforcement [5-23-18]