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The Advertisers That Boycott Facebook Will Pay

Senior Fellow and Director, Center for the Economics of the Internet

Ford, Uniliver, Pfizer, and over 500 other companies have recently pledged to suspend advertising spending on Facebook and other social networks as part of #StopHateForProfit, a campaign organized by various civil rights groups. While their professed goals may seem laudable—who wouldn’t want to “ hit pause on hate? ”—they ultimately will not prove to be effective in the competitive American economy.

There are diametrically opposite views of content control on the Internet. Under what might be called the Closed Internet model, a third-party monitors user-generated content, censoring content at odds with views of the third party or the government. Under the other approach, the Open Internet model, content is freely generated and exchanged with little or no censorship by the government or other third parties, except for some screens for pornography and other unlawful content.

The Open Internet model allows for perhaps the most effective advertising in human history, enabling companies to target small groups or even individuals based on individual traits, interests, or behaviors. Facebook has billions of users whose activities are tracked and analyzed by the company and others, and seemingly nearly as many user groups—prime targets for advertisers.

At almost any website, some material may occasionally offend some people, even advertisers. That is the trade-off of the Open Internet model: small amounts of bad content compensated by large amounts of freely flowing good content.

Enter #StopHateforProfit and its Facebook ad boycott. Keep in mind, there are no accusations that Facebook itself engages in hate speech. Alleging instead that Facebook turns a blind eye to hate speech in some of its uploaded content, #StopHateforProfit has called on corporations to stop advertising on Facebook for at least the month of July. Other social media outlets may someday be targets.

#StopHateforProfit compiled a list of 10 demands that effectively would cede control of Facebook to third parties likely allied with the political views of the members of #StopHateforProfit. The boycott seeks to turn Facebook—and perhaps the entire Internet—into the Closed Internet model. Further, the group claims the demands “are not sufficient, but they are a start.” Facebook executives, with fiduciary duties to shareholders, have not acquiesced to the demands.

To create public shame, #StopHateforProfit maintains a public list of companies participating in its boycott, as well as implicitly those that are not. The target today is Facebook; tomorrow, it may be one of the companies on the boycott list.

Writing in the 1950s, the future Nobel-Laureate Gary Becker explored the cost of business discrimination in his classic, The Economics of Discrimination. Professor Becker recognized that it was costly for an employer to discriminate between two equally capable workers merely because of the employer’s bigoted preference for the race of one worker over another. Firms that did not discriminate would have lower costs than those that did. In a competitive market, Professor Becker found that discrimination against one group of workers could not long survive.

Save for the unique horrors of race-based discrimination, Professor Becker’s economic findings are equally applicable to advertising today. Firms that use online advertising algorithms such as Facebook’s to find and to target the best potential customers will have lower costs and more efficient advertising than firms that refuse to do likewise.

Firms that choose to discriminate in the choice of advertising based on political intimidation will see their costs increase in at least three ways: (1) they will pay more in advertising dollars than they would without discrimination to reach the same customers; (2) investors will punish them for these inefficiencies; and (3) they put themselves at risk for counter-boycotts by consumers who are offended by the political discrimination.

Businesses that discriminate on the basis of any non-economic factor will inevitably become more costly and less efficient. They can survive only if they face little or no competition. For those few firms, the Closed Internet model beckons. But for companies in competitive markets—the vast majority of the American economy, the Open Internet is not merely the better option, it is the only viable option.

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