Citation

Discussion Paper Details

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Title: Information Revelation and Privacy Protection

Author(s): Rossella Argenziano and Alessandro Bonatti

Publication Date: August 2020

Keyword(s): consumer consent, consumer privacy, data linkages, data rights, personal information, price discrimination, Ratchet Effect and signaling

Programme Area(s): Industrial Organization

Abstract: We propose a microfoundation for consumers' privacy preferences and examine how it shapes the outcome of regulation. A single consumer interacts sequentially with two heterogeneous firms: the first firm collects data on consumer behavior, which the second firm uses to set a quality level and a price. Thus, the consumer manipulates her behavior to influence the future terms of trade. In equilibrium, manipulation is beneficial to the consumer when the recipient firm is sufficiently similar to the collecting firm (as measured by the relative salience of quality and price of their two products). We then evaluate the impact of privacy regulation, including mandatory transparency, explicit consent requirements, and limits to discriminatory offers. We show that transparency has an ambiguous effect on consumer welfare and that consent requirements are unambiguously beneficial to consumers but that limits to discrimination are harmful to consumers in equilibrium.

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Bibliographic Reference

Argenziano, R and Bonatti, A. 2020. 'Information Revelation and Privacy Protection'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15203