Privacy and Marketing Externalities: Evidence from Do Not Call

Abstract

If not well-targeted, advertising and direct marketing inflict nuisance and inconvenience on consumers. Theoretical analyses predict that consumer actions to avoid advertising impose externalities on other consumers. We investigate the extent of such externalities in the context of the U.S. Do Not Call (DNC) registry by exploiting the exogenous timing of the enforcement of the registry. Supported by multiple robustness tests, and validation and falsification exercises, we conclude that consumer DNC registrations imposed externalities on other consumers. An increase in the first wave of registrations by 1% was associated with a 3.1% increase in subsequent registrations. This effect was stronger in larger and more educationally diverse markets. The externality was possibly due to unregistered consumers being more receptive to telemarketing and telemarketers increasing calls to them. Our results suggest that managers should facilitate consumer opt-out, and especially in larger and more educationally diverse markets.

Keywords: privacy externalities, marketing do not call

JEL Classification: M37, K29