Discussion paper
DP15072 Privacy Protection, Security, and Consumer Retention
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 su¤er 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 websites equilibrium privacy policy, its welfare properties,
competition in the market for information, and the impact of regulations improving
transparency and consumer control.
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