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Monetizing Privacy

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Abstract

In a market where consumers choose between payment options and firms compete with products and prices, we show that payment data drives the formation of a market monopoly. A data-sharing policy can successfully restore and maintain a competitive market, but often at the expense of both efficiency and consumer welfare. The introduction of a low-cost anonymous means of electronic payment, or digital cash, preserves the market structure and improves consumers’ welfare by enabling them to monetize their private information. We discuss the potential role of central banks in providing digital cash.

Suggested Citation

  • Rod Garratt & Michael Junho Lee, 2021. "Monetizing Privacy," Staff Reports 958, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:89474
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    References listed on IDEAS

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    1. Maryam Farboodi & Roxana Mihet & Thomas Philippon & Laura Veldkamp, 2019. "Big Data and Firm Dynamics," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 38-42, May.
    2. Maria C. Wasastjerna, 2018. "The role of big data and digital privacy in merger review," European Competition Journal, Taylor & Francis Journals, vol. 14(2-3), pages 417-444, September.
    3. Zhuang Liu & Michael Sockin & Wei Xiong, 2020. "Data Privacy and Temptation," NBER Working Papers 27653, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    customer data; privacy; market structure; digital cash; payments;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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