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The Value of Personal Information in Markets with Endogenous Privacy

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This paper investigates the effects of price discrimination on prices, profits and consumer surplus, when one or more competing firms can use consumers' private information to price discriminate and consumers can pay a privacy cost to avoid it. While a monopolist always benefits from higher privacy costs, this is not true in the competing duopoly case. In this last case, firms' individual profits are decreasing while consumer surplus is increasing in the privacy cost. Finally, under competition, we show that the optimal selling strategy for the owner of consumer data consists in dealing exclusively with one firm in order to create maximal competition between the winner and the loser of data. This brings inefficiencies, and we show that policy makers should concentrate their attention on exclusivity deals rather than making it easier for consumers to protect their privacy.

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  • Rodrigo Montes & Wilfried Sand-Zantman & Tommaso Valletti, 2015. "The Value of Personal Information in Markets with Endogenous Privacy," CEIS Research Paper 352, Tor Vergata University, CEIS, revised 05 Aug 2015.
  • Handle: RePEc:rtv:ceisrp:352
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    Cited by:

    1. Shota Ichihashi, 2020. "Online Privacy and Information Disclosure by Consumers," American Economic Review, American Economic Association, vol. 110(2), pages 569-595, February.
    2. Belleflamme, Paul & Vergote, Wouter, 2016. "Monopoly price discrimination and privacy: The hidden cost of hiding," Economics Letters, Elsevier, vol. 149(C), pages 141-144.
    3. Morlok, Tina & Matt, Christian & Hess, Thomas, 2017. "Privatheitsforschung in den Wirtschaftswissenschaften: Entwicklung, Stand und Perspektiven," Working Papers 1/2017, University of Munich, Munich School of Management, Institute for Information Systems and New Media.
    4. 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.
    5. Simon Anderson & Alicia Baik & Nathan Larson, 2023. "Price Discrimination in the Information Age: Prices, Poaching, and Privacy with Personalized Targeted Discounts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(5), pages 2085-2115.
    6. Anna D’Annunzio & Antonio Russo, 2020. "Ad Networks and Consumer Tracking," Management Science, INFORMS, vol. 66(11), pages 5040-5058, November.
    7. Marta Rocha & Thomas Greve, 2021. "Contracting in a Market with Differential Information," Journal of Industry, Competition and Trade, Springer, vol. 21(2), pages 193-210, June.
    8. Elias Carroni & Leonardo Madio & Shiva Shekhar, 2019. "Superstar Exclusivity in Two-Sided Markets," CESifo Working Paper Series 7535, CESifo.
    9. Imke Reimers & Benjamin R. Shiller, 2018. "Welfare Implications of Proprietary Data Collection: An Application to Telematics in Auto Insurance," Working Papers 119R, Brandeis University, Department of Economics and International Business School, revised May 2018.
    10. Paul Belleflamme & Wing Man Wynne Lam & Wouter Vergote, 2017. "Price Discrimination and Dispersion under Asymmetric Profiling of Consumers," Working Papers halshs-01502452, HAL.
    11. Elias Carroni & Leonardo Madio & Shiva Shekhar, 2024. "Superstar Exclusivity in Two-Sided Markets," Management Science, INFORMS, vol. 70(2), pages 991-1011, February.

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