A new, high-quality research paper concludes that Europe’s data protection laws have stifled innovation.
According to the paper published this week, the increased data protection requirements of the EU’s GDPR have a devastating effect on the introduction of new apps.
The paper, titled ‘GDPR and the Lost Generation of Innovative Apps’, was produced by economic researchers Rebecca Janßen (ZEW Mannheim, Germany), Reinhold Kesler (University of Zurich, Switzerland), Michael Kummer (University of East Anglia, UK) and Joel Waldfogel (University of Minnesota, USA). The international group examined the impact of Europe’s General Data Protection Regulation (GDPR) on the mobile app business.
Using data on 4.1 million Google Play Store apps from 2016 to 2019, the authors document that GDPR induced the exit of about a third of available apps. Moreover, in the quarters following implementation, entry of new apps fell by half, they say.
“Whatever the benefits of GDPR’s privacy protection, it appears to have been accompanied by substantial costs to consumers, from a diminished choice set, and to producers from depressed revenue and increased costs”, the paper finds. “We estimate a structural model of demand and entry in the app market. Comparing long-run equilibria with and without GDPR, we find that GDPR reduces consumer surplus and aggregate app usage by about a third. Whatever the privacy benefits of GDPR, they come at substantial costs in foregone innovation.”
The app market became less attractive
Under GDPR, app developers face the cost of complying with rules that require consent for data gathering, transparent data processing, purpose limitation, accuracy, limited retention, confidentiality, and accountability. The paper admits that “apps became less intrusive after GDPR, although the decline in intrusiveness was partly the continuation of a pre-existing trend.”
In a phone interview, with The Register, co-author Michael Kummer, a lecturer at the University of East Anglia in the UK, said: “We recognize the use and potential value of regulating data and user privacy in the digital sphere, but it looks like GDPR – all the value it might have generated notwithstanding – has had this very high cost on innovation in the app market.”
Kummer said the one-third decline looks scary. Nevertheless, the paper does point out that these apps only accounted for 3 percent of app usage. “These apps are largely useless”, he said. “That’s not the problem. The problem is that entry into the app market has become much less attractive. And we’re seeing much lower numbers of new apps being created.”