- The FTC is building an economic case for privacy enforcement, and MIT IDE’s Alessandro Acquisti gave testimony arguing that standard regulatory tools underestimate behavioral ad harms.
- His research challenges the ad industry’s core claim that behavioral advertising benefits everyone.
- States aren’t waiting for federal action. Nineteen have passed comprehensive consumer privacy laws.
On February 26, economists and legal scholars from across the country gathered in Washington at the invitation of the Federal Trade Commission. The FTC-hosted workshop aimed to dig deeper into the costs and benefits of collecting and monetizing consumer personal data for online advertising, such as behavioral ads. The testimony collected will become part of an evidentiary record that will shape future enforcement for this administration and beyond.
Among those called to testify was Alessandro Acquisti, Professor of Information Technology at MIT Sloan School of Management and research lead at the MIT Initiative on the Digital Economy. Backed by years of research and a newly released paper, Acquisti argued that the online advertising economy may not be the win-win scenario the ad industry has long promised, and there are solid economic grounds for regulating it.
The research underpinning Acquisti’s testimony challenges assumptions that many companies have treated as settled. This hearing could later impact targeted advertising regulations and how companies collect and use personal data, which in turn would affect digital marketing strategies and revenue streams.
While Washington gathers data on consumer privacy harms, companies that navigate in the online advertising space should take heed. States have passed or are considering data privacy laws that could force businesses to adjust advertising practices sooner rather than later.
What the FTC Wanted to Know
The workshop, titled “Measuring Injuries and Benefits in the Data-Driven Economy,” was convened under FTC Chairman Andrew Ferguson, who opened by laying out three problems the agency is wrestling with.
- How to put a dollar value on personal data.
- How to establish that privacy harm has occurred when consumers rarely know their data is being used against them.
- How to build enforcement cases that will survive legal challenge.
The FTC’s role, Ferguson said, is to promote consumer choice and a vibrant economy. The hearing, therefore, sought to identify a path to accomplish this goal.
“How do we ascertain what counts as a harm to a consumer’s privacy when most consumers do not fully grasp the mechanisms by which their data are acquired, shared, stored, protected or monetized for advertising purposes?” asked Ferguson.
The Problem with Existing Regulations
Acquisti’s testimony cut to a fundamental problem with assessing harm. Standard economic tools aren’t built to capture what privacy violations actually do to people. The harms are diffuse, slow to surface, and are rarely felt consciously, which makes them easy to dismiss and hard to litigate.
The FTC needs a framework that accounts for externalities and consumer rights, not just losses that can be immediately priced. These arguments draw from Acquisit’s paper, “Economic Rationales for Regulating Behavioral Ads,” which heco-authored with Cristobal Cheyre and Pegah Moradi and was published in the Yale Journal of Law & Technology. It concluded that the industry’s economic case against ad-tech regulation is built on selective evidence, and the fuller picture supports a different outcome.
Behavioral Ad Privacy 101: How Consumer Data is Collected and Used
Acquisti’s research focuses on behavioral advertising, which uses the data trail consumers leave online to create targeted ad campaigns. These can include:
- Retargeting: Show consumers ads for products previously viewed but did not purchase, encouraging them to return.
- Interest-Based Targeting: Analyzing browsing history to display relevant ads.
- Search Engine Behavior: Using search queries to identify user intent and deliver ads for related services.
- Audience Segmentation: Grouping users with similar online behaviors to deliver tailored advertising campaigns.
Anyone who’s been online has experienced some form of behavioral advertising. Search for a hotel in Miami on Monday and you’re seeing travel ads for the rest of the week across every site you visit.
This technology runs on a vast, largely invisible infrastructure of data brokers, real-time bidding platforms, and tracking tools that most users never see.
Research Challenges the Behavioral Ads “Win-Win”
The industry pitch has always been that this system benefits everyone. Advertisers spend budgets more efficiently. Publishers earn more revenue. Consumers get relevant ads and free content they’d otherwise have to pay for. But if you ask consumers, publishers, and merchants, they dislike the current online advertising and data collection, according to the research.
“The online advertising industry has long extolled the benefits of targeted advertising, presenting it as an economic win-win for publishers, merchants and consumers alike,” said Acquisti in a piece published by WBUR. “And yet, in reality, there is little robust empirical evidence that any stakeholder — other than the data intermediaries themselves — actually benefits from this type of advertising.”
After reviewing decades of theoretical and empirical economic research, the research scientists found that the benefits are not distributed the way the industry describes. The literature not only included evidence from privacy loss, but also a lack of long-term harm from ad-tech regulation.
Furthermore, the research finds, “there is limited empirical economic evidence to support the view that free data collection and processing is an economic win-win for all parties involved.” In fact, behavioral ads may offer small benefits to parties beyond data intermediaries.
The Economics of Behavioral Advertising
For instance, among the many empirical studies Acquisti and colleagues ran in this area, two controlled online experiments compared the products shown to consumers in targeted ads against alternatives easily available through a standard search.
The studies found that the targeted advertising was more likely to feature lower-quality vendors and higher prices than what consumers could find on their own. The ads felt relevant but were not showing people something new. These ads were following them around after they’d already done their research, steering them toward worse deals.
Other recent empirical studies take on the industry’s argument that privacy regulations damage the ad-supported internet by depriving publishers of revenue. Real-world data says otherwise. Evidence from GDPR in Europe and Apple’s App Tracking Transparency, which restricts cross-app data sharing, shows that online ecosystems adapt. The predicted collapse of free content didn’t happen. When tracking is restricted, data brokers take the hit, but publishers and consumers are more resilient than the industry’s warnings suggest.
Not every voice at the workshop agreed with Acquisti. Nils Wernerfelt of Northwestern University presented data showing that Apple’s tracking restrictions led to a 37% increase in customer acquisition costs for the median advertiser, a burden he argued that falls hardest on small businesses. Large platforms have rich first-party data and the scale to absorb tracking restrictions, while smaller advertisers frequently don’t. However, Wernderfelt’s study focused on advertisers particularly dependent on Facebook ads – which may not reflect how the aggregate of small businesses is affected by Apple’s tracking restrictions.
States Aren’t Waiting on Consumer Data Privacy Regulation
Outside of the FTC process, 19 states have added comprehensive consumer privacy laws on the books. California, Maryland, and Colorado have enacted the strongest protections, while Kentucky, Indiana, and Rhode Island are newcomers to consumer privacy protections, enacting laws that took effect January 1, 2026.
In Massachusetts, two bills are moving simultaneously through the Senate and House: The Massachusetts Data Privacy Act and the Massachusetts Consumer Data Privacy Act. The latter has been called the most protective state data privacy bill in the country. It would restrict behavioral advertising based on consumer data and ban the sale of sensitive personal information.
What’s Next for Consumer Data Collection?
The FTC’s February workshop was a signal that the agency is building economic rigor into its privacy enforcement framework. States are taking this issue up on their own, with data privacy laws on the books and more in debate. Research from Acquisti and colleagues also makes a strong case that regulation may benefit consumers without harming markets.
“Rather than resulting in a loss of welfare for consumers, privacy regulation could instead result in a reduction of harms and in a more balanced allocation of the costs and benefits of data accumulation,” states his paper.
The FTC workshop closed with the Bureau of Consumer Protection signaling that the FTC intends to weigh both harms and benefits carefully before acting.