DP12860 Mobility with private information and privacy suppression

Author(s): Saara Hämäläinen, Vaiva Petrikaite
Publication Date: April 2018
Keyword(s): Changing tastes, directed search, Experience Goods, mobility, Privacy suppression, private information
JEL(s): D82, D83, L11
Programme Areas: Labour Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12860

We consider a problem of matching guests with suitable hosts in a dynamic, directed search market in which a visitor's private taste and plans are subject to change. Guests learn about hosts by visiting them personally, which reveals whether the destination merits a repeat visit. Hosts prefer to target guests with high willingness to pay but, assuming full privacy, cannot tell whether they should rely on previous visitors or hold a sale to attract new visitors. We find that guests' private learning reduces matching frictions by sustaining longer visits to particularly fitting destinations. The strength of this effect depends on competition intensity. We also discover that a ban of tracking and targeting technologies may reduce consumer surplus. Specifically, access to visitor data enables their earlier hosts to respond more rapidly to demand changes, which can intensify competition and put downward pressure on prices.