Zero-price Platform Services: There Is No Free Lunch in Applying the “No Free Lunch” Principle

The well-known economic principle that “there is no such thing as a free lunch” (“NFLP”) has enjoyed a recent revival in the assessment of digital markets in antitrust. There is a belief that NFLP implies zero-price platform services must somehow be “paid for” by consumers in some manner—such as the loss of privacy and valuable data. Others have gone further, asserting that consumers are not only made worse off by the data collection and use that attend zero-price platform services, but that this state of affairs necessarily points to a lack of competitive alternatives. Both assertions are invalid, pressing the NFLP beyond the limits of logical inference. Inferences about who pays resource costs, and whether those payments reflect market power, are empirical questions as illuminated by other economic principles. Answers to such critical questions cannot be plucked from an NFLP magic hat. The NFLP is the truism that, at the margin, any benefit must come at some cost; economic resources must be expended, andsomeone will have to cover those expenditures. But the NFLP does not, without more, specify who bears the costs. The potential error here is a subtle one, but with profound consequences. It is wrong to conflate the resource costs required to provide a service with the effective price paid by those receiving the service. The NFLP does not imply the two must be equal.

By Alexander Raskovich & John M. Yun^[1]

There is a well-known economic