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Consumers' Privacy Choices in the Era of Big Data

Author

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  • Prüfer, Jens

    (Tilburg University, Center For Economic Research)

  • Dengler, Sebastian

    (Tilburg University, Center For Economic Research)

Abstract

Recent progress in information technologies provides sellers with detailed knowledge about consumers' preferences, approaching perfect price discrimination in the limit. We construct a model where consumers with less strategic sophistication than the seller's pricing algorithm face a trade-off when buying. They choose between a direct, transaction cost-free sales channel and a privacy-protecting, but costly, anonymous channel. We show that the anonymous channel is used even in the absence of an explicit taste for privacy if consumers are not too strategically sophisticated. This provides a micro-foundation for consumers' privacy choices. Some consumers benefit but others suffer from their anonymization.
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Suggested Citation

  • Prüfer, Jens & Dengler, Sebastian, 2018. "Consumers' Privacy Choices in the Era of Big Data," Discussion Paper 2018-012, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:3fac3011-dc4d-4b81-8f66-32d3b7a3c761
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    Cited by:

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    2. Foros, Øystein & Kind, Hans Jarle & Nguyen-Ones, Mai, 2024. "The choice of pricing format: Firms may choose uniform pricing over personalized pricing to induce rivals to soften competition," Information Economics and Policy, Elsevier, vol. 66(C).
    3. Rupayan Pal & Sumit Shrivastav, 2024. "Privacy regulation, cognitive ability, and stability of collusion," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-004, Indira Gandhi Institute of Development Research, Mumbai, India.
    4. Prüfer, Jens, 2018. "Trusting privacy in the cloud," Information Economics and Policy, Elsevier, vol. 45(C), pages 52-67.
    5. MARTENS Bertin, 2020. "An economic perspective on data and platform market power," JRC Working Papers on Digital Economy 2020-09, Joint Research Centre.
    6. Shuaicheng Liu, 2024. "Privacy regulation in asymmetric environments," Journal of Regulatory Economics, Springer, vol. 66(2), pages 157-173, December.
    7. Bertin Martens, 2018. "The impact of data access regimes on artificial intelligence and machine learning," JRC Working Papers on Digital Economy 2018-09, Joint Research Centre.
    8. Li, Jianpei & Zhang, Wanzhu, 2024. "The Value of Anonymous Option," MPRA Paper 120010, University Library of Munich, Germany.
    9. Bertin Martens & Alexandre de Streel & Inge Graef & Thomas Tombal & Nestor Duch-Brown, 2020. "Business-to-Business data sharing: An economic and legal analysis," JRC Working Papers on Digital Economy 2020-05, Joint Research Centre.

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    More about this item

    Keywords

    privacy; big data; perfect price discrimination; level-k thinking;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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