DP15072 Privacy Protection, Security, and Consumer Retention

Author(s): Bruno Jullien, Yassine Lefouili, Michael Riordan
Publication Date: July 2020
Keyword(s): Consumer Retention, Personal Data, Privacy Policy, regulation
JEL(s): D83, L15, L51
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15072

A website monetizes information it collects about its customers by charging third parties for targeted access to them. Allowing for third parties who are well-intentioned, a nuisance, or even malicious, the resulting consumer experiences might be good, bad, or neutral. As consumers learn from experience, the website especially risks losing those customers who suffer a bad experience. Customer retention thus motivates the website to be cautious about monetization, or to spend resources to screen third parties. We study the website's equilibrium privacy policy, its welfare properties, competition in the market for information, and the impact of regulations improving transparency and consumer control.