Hide and Seek: Costly Consumer Privacy in a Market with Repeat Purchases

39 Pages Posted: 16 Oct 2011

See all articles by Liad Wagman

Liad Wagman

Illinois Institute of Technology - Stuart School of Business, IIT

Vincent Conitzer

Duke University

Curtis R. Taylor

Duke University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 15, 2011

Abstract

When a firm can recognize its previous customers, it may use information about their past purchases in order to price discriminate. We study a model with a monopolist and a continuum of heterogeneous consumers, where consumers have the ability to maintain their anonymity and avoid being identified as past customers, possibly at a cost. When consumers can freely maintain their anonymity, they all individually choose to do so, which results in the highest profit for the monopolist. Increasing the cost of anonymity can benefit consumers, but only up to a point, after which the effect is reversed. We show that if the monopolist or an independent third party controls the cost of anonymity, it often works to the detriment of consumers.

Keywords: Anonymity, Customer Recognition, Price Discrimination, Identity Management

JEL Classification: L1, D8

Suggested Citation

Wagman, Liad and Conitzer, Vincent and Taylor, Curtis R., Hide and Seek: Costly Consumer Privacy in a Market with Repeat Purchases (October 15, 2011). Available at SSRN: https://ssrn.com/abstract=1944633 or http://dx.doi.org/10.2139/ssrn.1944633

Liad Wagman (Contact Author)

Illinois Institute of Technology - Stuart School of Business, IIT ( email )

565 W Adams St Suite 452
Chicago, IL 60661
United States
7739809883 (Phone)

HOME PAGE: http://lwagman.org

Vincent Conitzer

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Curtis R. Taylor

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1827 (Phone)
919-684-8974 (Fax)

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