Download This PaperPrivacy, Information Acquisition, and Market Competition
35 Pages Posted: 28 Mar 2017 Last revised: 17 Jun 2021
Date Written: June 16, 2021
Abstract
This paper analyzes how data-driven vertical integration between a platform and one downstream seller affects market outcomes in a two-sided market where sellers with asymmetric targeting skills target advertisements to individuals who have varying privacy concerns. I show that data-driven vertical integration leads to the incumbent's exclusive use of data. Therefore, a market entrant that has worse targeting technology than an incumbent is disproportionately harmed by such integration. The welfare analysis shows that integration can be welfare-reducing if consumers' privacy concerns are relatively high. Therefore, individually optimal decisions on data disclosure might not be socially optimal when aggregated.
Keywords: Privacy; Data Intermediary; On-line Advertising; Targeted Advertising; Vertical Integration
JEL Classification: D21; D22; D83; L15; L22; L42; L52
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