DP15203 Data Linkages and Privacy Regulation
We assess the efficacy of existing privacy regulations with privacy-conscious consumers. We develop a model of data linkages where a consumer interacts sequentially with two firms: one firm collects data on consumer behavior, and the other firm leverages the data to set a quality level and a price. A data linkage benefits the consumer in equilibrium when the recipient firm is sufficiently similar to the collecting firm. We endogenize linkage formation under numerous instances of privacy regulation. Voluntary consent
requirements are beneficial to consumers in equilibrium but blanket bans on discriminatory price and quality offers are harmful.