> 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.

> If that user doesn't exist and the user who values it the least values it at $100

In a competitive market, which is the case being talked about in what you responded to, that's impossible. If the production cost is $1, more users will keep buying the product until the marginal user values it at $1. If there are no users who value it between $100 and $1, then you don't have a competitive market; either the product or service is too specialized to permit real competition (which is highly implausible for the kinds of services we're talking about), or someone has their thumb on the scale.

> Not all of them are competitive.

The market not being competitive doesn't create any connection that isn't there in a competitive market. So it doesn't change what I said.

> They are party to it though. They didn't pay money, but they paid in attention

The transaction in which the users pay with attention is not the same as the transaction where the advertisers pay the tech company to get their ads shown. The latter transaction is the one I was talking about in what you responded to. The user is not a party to that transaction.

> you can be pretty effective with search advertising by basing the ads entirely on the search query while knowing nothing whatsoever about the user.

Yes, you do know something about the user: what search query they entered. True, it's not as much information about the user as they collect in other ways, but it's still information about the user. If I enter a search query for Depends, Google knows something about me that's of value to advertisers.

> The service doesn't have to end up underwater for something stupid to be happening

True, but irrelevant to what I was saying, or what you were saying that I responded to.