"Otherwise, industry may lose the incentive to participate and instead take a wait and see attitude about whether Congress would ever impose such requirements through legislation," she said.
The FTC could penalize a company that agrees to privacy protection standards but then violate them, Ohlhausen explained.
Ohlhausen, who joined the FTC in April 2012, said she would not have supported the commission's call for Congress to enact baseline Internet privacy protection legislation.
The comments break from FTC Chairwoman Edith Ramirez, who has vowed to more aggressively regulate Internet companies like Facebook and Google and has called on Congress to pass privacy legislation.
"We haven't been shy about taking on the tech giants," Ramirez said earlier this year in her first public speech as chairwoman. "That has been just tremendous. And that’s all, in my mind, vital and will continue."
Ramirez has argued that the FTC has the authority to punish companies for an unfair practice if it harms consumers, even if it is not deceptive or anti-competitive.
That power can be especially important in privacy violation cases.
But Ohlhausen argued that the FTC should only use its unfairness power if there is a "substantial" financial, health or safety harm.
“I don’t think creepiness falls under the unfairness statement,” she said.
Although privacy has traditionally been viewed as a consumer protection issue, Ohlhausen argued that it should also be viewed as a competition issue. If consumers are worried about their privacy, they can use services that offer stronger protections for their personal information.
She also warned that new privacy regulations could stifle competition by creating barriers to entry and burdening small companies.