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The Bright Side of the GDPR: Welfare-improving Privacy Management

Author

Listed:
  • Chongwoo Choe

    (Department of Economics, Monash University)

  • Noriaki Matsushima

    (Institute of Social and Economic Research, Osaka University)

  • Shiva Shekhar

    (The corresponding author. Tilburg School of Economics and Management (TiSEM), CESifo Research affiliate)

Abstract

We study the GDPR’s opt-in requirement in a model with a firm that provides a digital service and consumers who are heterogeneous in their valuations of the firm’s service as well as the privacy costs incurred when sharing personal data with the firm. We show that the GDPR boosts demand for the service by allowing consumers with high privacy costs to buy the service without sharing data. The increased demand leads to a higher price but a smaller quantity of shared data. If the firm’s revenue is largely usage-based rather than data-based, then both the firm’s profit and consumer surplus increase after the GDPR, implying that the GDPR can be welfare-improving. But if the firm’s revenue is largely from data monetization, then the GDPR can reduce the firm’s profit and consumer surplus.

Suggested Citation

  • Chongwoo Choe & Noriaki Matsushima & Shiva Shekhar, 2023. "The Bright Side of the GDPR: Welfare-improving Privacy Management," Monash Economics Working Papers 2023-14, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2023-14
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    References listed on IDEAS

    as
    1. Ratul Das Chaudhury & Chongwoo Choe, 2023. "Digital Privacy: GDPR and Its Lessons for Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(2), pages 204-220, June.
    2. Garrett A. Johnson & Scott K. Shriver & Shaoyin Du, 2020. "Consumer Privacy Choice in Online Advertising: Who Opts Out and at What Cost to Industry?," Marketing Science, INFORMS, vol. 39(1), pages 33-51, January.
    3. Congiu, Raffaele & Sabatino, Lorien & Sapi, Geza, 2022. "The Impact of Privacy Regulation on Web Traffic: Evidence From the GDPR," Information Economics and Policy, Elsevier, vol. 61(C).
    4. Zhijun Chen, 2022. "Privacy Costs and Consumer Data Acquisition: An Economic Analysis of Data Privacy Regulation," Monash Economics Working Papers 2022-07, Monash University, Department of Economics.
    5. Choi, Jay Pil & Jeon, Doh-Shin & Kim, Byung-Cheol, 2019. "Privacy and personal data collection with information externalities," Journal of Public Economics, Elsevier, vol. 173(C), pages 113-124.
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    Cited by:

    1. Li, Jianpei & Zhang, Wanzhu, 2024. "The Value of Anonymous Option," MPRA Paper 120010, University Library of Munich, Germany.

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    More about this item

    Keywords

    GDPR; opt-in; opt-out; privacy management; welfare;
    All these keywords.

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • K24 - Law and Economics - - Regulation and Business Law - - - Cyber Law

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