How Consumer Data Affects Competition Through Digital Advertising

How Consumer Data Affects Competition Through Digital Advertising

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Updated January 26, 2023
How Consumer Data Affects Competition Through Digital
Advertising
Digital advertising allows advertisers to send targeted ads,
Figure 1. U.S. Digital Advertising Revenue
meaning different users viewing the same website or app at
($ in bil ions)
the same moment might see different ads. By using targeted
ads, websites and apps may have an advantage over other
forms of media, such as magazines, radio, and television.
The collection of consumer data may affect competition in
digital advertising and raise privacy concerns (see CRS
Report R47298, Online Consumer Data Collection and
Data Privacy, by Clare Y. Cho and Kristen E. Busch). This
In Focus discusses how the collection of consumer data
might affect competition among advertisers and among
websites and apps that obtain revenue from digital ads.

Consumer Data in Digital Advertising
Source: Interactive Advertising Bureau, “Internet Advertising
Revenue Report,” April 2022, prepared by PwC.
To determine which ad each user receives, advertisers and
Note: Includes advertising on desktop and laptop computers, mobile
operators of websites and apps can use software and tools
phones, tablets, and other internet-connected devices and includes al
known as ad tech. Advertisers use ad tech to place
formats of advertising.
automated bids in a marketplace that runs an instantaneous
auction. Advertisers identify their target audience based on
Competition Among Websites and Apps
demographics, past customers, and other factors that might
Google, Amazon, and Meta Platforms (the owner of
suggest the user would be interested in the ad. They also
Facebook and Instagram) collect most of the digital
indicate the level of exposure they want to achieve and the
advertising revenue in the United States. eMarketer
amount they are willing to bid. Websites and apps use ad
estimated that these three companies accounted for 63% of
tech to offer ad spaces—places where ads are displayed—
the digital ad revenue in 2019 and would account for 65.1%
in the marketplace, with information about the user
in 2023 (Figure 2).
currently viewing the page. The user sees the ad chosen by
the marketplace, selected based on the advertiser’s bid and
Figure 2. Digital Ad Revenue Share by Company
the relevance of the ad to the user. Ads receive higher
(% of total U.S. digital ad spending)
relevance scores when they receive positive feedback, such
as users clicking on the ad, whereas ads that trigger fewer
responses receive lower scores.
Advertisers, as well as website and app operators, have
incentives to improve their ad targeting by collecting
detailed information about each user. Advertisers might
expect more precise targeting to increase sales. Websites’
revenue may depend on how frequently users click on the
ad or how much time users spend viewing the ad.
In the United States, digital ad spending made up 55.6% of
total media ad spending in 2019 and 71.8% in 2022,
according to an eMarketer article (November 7, 2022).
Revenue from digital ads has increased substantially over
the last two decades (Figure 1). Much of the growth in
recent years has come from advertising on mobile devices.

Source: eMarketer, October 2021.
Note: Includes advertising on desktop and laptop computers, mobile
phones, tablets, and other internet-connected devices; net ad
revenues after companies pay traffic acquisitions costs to partner
sites; *includes YouTube ad revenue; ** includes Facebook and
Instagram ad revenue.
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How Consumer Data Affects Competition Through Digital Advertising
Any website or app can have digital ad spaces. Operators of
streams dominate the ads consumers receive. Advertisers
websites and apps can obtain more consumer data by
with large budgets may be able to outbid smaller advertisers
increasing the number of users or by acquiring more
for ad spaces. For example, internet users searching for a
information about each user. Operators can sell more ad
hotel room may be more likely to encounter ads from travel
spaces to advertisers by increasing the number of users and
booking agencies and large hotel chains than from an
can improve their ad targeting by acquiring more
independently owned hotel. Although relevance scores
information about each user. The data collected might
could help mitigate this advantage, large advertisers may
enable a website operator to better predict future product
maintain an advantage if they conduct extensive market
needs or set different prices for its services based on the day
research or if there are a limited number of ad spaces. New
of the week. Operators may be able to improve their ability
advertisers or advertisers with small budgets may have
to predict consumer behavior by using machine learning or
difficulty competing for ad spaces under such
other technological developments.
circumstances, and consumers searching for a particular
product may continuously see ads from the same advertiser.
Certain types of websites or apps may be better suited to
obtain consumer data. An online marketplace or search
Consumer Data in Federal Antitrust
engine is likely to have a wide variety of interactions with
Cases
individual users who repeatedly shop or search for
The Department of Justice (DOJ) Antitrust Division and the
information. In contrast, a music streaming service may
Federal Trade Commission (FTC) enforce federal antitrust
know only about users’ musical tastes, location, and
laws. These agencies are revising their merger guidelines.
spending on its website.
On January 18, 2022, in their request for information, the
agencies asked how the guidelines should “analyze mergers
Some website and app operators might pursue mergers and
involving data aggregation as an important motive and/or
acquisitions to collect more or different types of data. For
effect” in digital markets.
example, when Amazon acquired Whole Foods in 2017,
Amazon obtained data on Whole Foods customers’ grocery
In some of their antitrust lawsuits, the DOJ Antitrust
purchases. The acquisition also enabled Amazon to collect
Division and FTC have expressed concern about the
data on how the same consumer shops online and in person,
amount of consumer data held by companies. For example,
which might be useful for targeting ads.
in its lawsuits against Google, the DOJ Antitrust Division
alleges that Google maintained its dominance in ad tech and
The amount of consumer data amassed by established
search services using the large amount of user data it has
website operators may give them an advantage over market
obtained, as well as engaging in anticompetitive conduct.
entrants. Entrants might initially have fewer users and less
For more information about Google’s ad tech and
information about them than established operators, such as
allegations of its anticompetitive behavior, see CRS Report
their past product views, responses to ads, or browsing
R47018, Stop the Presses? Newspapers in the Digital Age,
history. This might make new entrants less appealing to
by Dana A. Scherer and Clare Y. Cho.
advertisers, resulting in fewer or lower bids.
Concluding Remarks
Some companies that operate websites and apps rely on ad
It is not necessarily anticompetitive for a company to have a
tech created by their competitors. While these tools may
large amount of consumer data. A company might have
help website operators better target their ads by using more
large amounts of data because it attracted numerous
consumer information than the operators could collect on
customers or users. However, companies can obtain large
their own, the companies providing the ad tech obtain
amounts of data using anticompetitive methods. For
information about the websites’ users as well. As a result,
example, a company might be able to use its market power
any consumer data obtained by a new website or app would
to obtain certain data or prevent others from obtaining it.
also be acquired by its competitor.
Competition Among Advertisers
Some data might be valuable for a short period, and other
data might help companies develop a detailed profile of
Improved ad targeting might increase competition among
their users. Companies arguably do not have an incentive to
advertisers. Ads from lesser-known advertisers might be
limit or prevent others from obtaining consumer data
placed adjacent to ads from better-known competitors in
because it is nonrivalrous—that is, the value of data to one
response to a search term or phrase. An advertiser might
firm does not diminish because more companies have
ask that its ads be given to users who have viewed a well-
access to the data. However, in some instances, limited
known competitor’s website. Targeted ads may be
access to data can serve as a barrier to entry. Furthermore,
particularly beneficial for nascent companies without a
companies with large amounts of consumer data may have
large marketing budget or team and companies offering
a competitive advantage over others. This advantage may
specialized products that might be of interest only for some
be heightened if restrictions are placed on the future
people. In addition, targeted ads may be particularly
collection of consumer data but not on the use of data
beneficial for online-only sellers that may be reliant on
already obtained.
advertising to obtain consumers, as they lack brick-and-
mortar store locations.
Clare Y. Cho, Analyst in Industrial Organization and
However, the ability to target ads precisely might not
Business
increase competition if advertisers with large revenue
IF11448
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How Consumer Data Affects Competition Through Digital Advertising

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