> In a competitive market the price only depends on the value to users in the sense that it's required to be lower than that to make any sales.

That's a restatement of what I said: price equals marginal cost equals marginal value--the value to the marginal user, who just breaks even by making the trade.

> It uncouples the lower bound.

Which you've already agreed is the only connection. So again you're just restating what I said.

> You got $0.50 worth of value without paying anything.

First, this is irrelevant now because the advertiser got at least $1 of value (or perceived value) in exchange for $1. The user wasn't a party to that exchange at all.

Second, the user didn't pay any money, but they did pay with their data. But they don't see that cost; it's a negative externality. And it's turned out to be a pretty large one.

> The real problem here is, they can do something you value at negative $10, but the advertiser will pay them an extra $0.05 to do it, and then they do it because "you're not the customer, you're the product".

If I actually assign negative value to using the service, I won't use it at all. They can't mine my data if I don't give it to them. I personally am in this exact position with respect to, for example, Facebook.

If the negative $10 is the net of all externalities, then yes, I can end up using a service that actually makes me worse off, because I don't see the negative externalities.

> Externalities are when the costs are imposed on someone who isn't a party to the transaction.

Yes; in this case the costs of having their data monetized using ads are imposed on users, who aren't a party to the ad transaction.

> What you're describing is an information asymmetry.

I suppose it could be viewed this way, in the sense that the services don't share with users all the relevant information about how their data is used. In many cases they share practically none of it.

> that's assuming the market is actually competitive

In the sense that there are massive thumbs on the scale, yes, I agree the markets in this area are not competitive.

> That's a restatement of what I said: price equals marginal cost equals marginal value--the value to the marginal user, who just breaks even by making the trade.

The thing you're saying is backwards; the consequence rather than the cause. If the price is $1 and it can't be lower than that because that's the production cost then the user who is only willing to pay $0.90 doesn't buy it, but that has no effect on the price one way or the other.

If that user doesn't exist and the user who values it the least values it at $100, there is no user who is only breaking even. Every user has a surplus of at least $99 vs. not having it and the price is still $1 because there are a dozen companies willing to sell it for $1 who don't want to lose business by charging more than the others.

> Which you've already agreed is the only connection. So again you're just restating what I said.

It's the only connection in a competitive market. Not all of them are competitive.

> First, this is irrelevant now because the advertiser got at least $1 of value (or perceived value) in exchange for $1. The user wasn't a party to that exchange at all.

They are party to it though. They didn't pay money, but they paid in attention and have the option to patronize a different service if the market is competitive. And if it isn't then it's that rather than the ads which is the problem.

> Second, the user didn't pay any money, but they did pay with their data. But they don't see that cost; it's a negative externality. And it's turned out to be a pretty large one.

There are forms of advertising where this isn't required, e.g. you can be pretty effective with search advertising by basing the ads entirely on the search query while knowing nothing whatsoever about the user.

Obviously they then collect the data too because it makes the advertising marginally more effective, but that's the thing where you'd like to pay a nickel to have them not.

> If I actually assign negative value to using the service, I won't use it at all.

The service doesn't have to end up underwater for something stupid to be happening. You could have valued it at $15 originally and then the advertiser pays an extra $0.05 to reduce your $15 value to $5. It's still a positive number but you would much prefer to pay the extra $0.05 yourself than to lose $10 in value, except that's currently unreasonably hard to do.