DP14466 The Economics of Social Data

Author(s): Dirk Bergemann, Alessandro Bonatti, Tan Gan
Publication Date: March 2020
Keyword(s): consumer privacy, data externality, data flow, data intermediaries, data policy, data rights, personal information, privacy paradox, social data
JEL(s): D44, D82, D83
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14466

A data intermediary pays consumers for information about their preferences and sells the information so acquired to firms that use it to tailor their products and prices. The social dimension of the individual data---whereby an individual's data are predictive of the behavior of others---generates a data externality that reduces the intermediary's cost of acquiring information. We derive the intermediary's optimal data policy and show that it preserves the privacy of the consumers' identities while providing precise information about market demand to the firms. This enables the intermediary to capture the entire value of information as the number of consumers grows large.