Customer Privacy and Competition

36 Pages Posted: 10 Jan 2014 Last revised: 27 Jul 2015

See all articles by Oz Shy

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Rune Stenbacka

Hanken School of Economics

Date Written: July 27, 2015

Abstract

We analyze how different degrees of privacy protection affect industry profits, consumer welfare, and total welfare in a model with switching costs. Firms earn higher profits under weak privacy protection compared with strong or no privacy protection. The relationship between the degree of privacy protection and equilibrium profits is not monotonic. Consumer surplus and total welfare increase with the degree of privacy protection unless firms recognize consumer-specific switching costs. In that case, pricing conditional on switching costs has favorable implications for consumer surplus and total welfare.

Keywords: customer privacy, privacy protection, customer recognition, price discrimination, behavior-based pricing

JEL Classification: D4, D82, L1, L4

Suggested Citation

Shy, Oz and Stenbacka, Rune, Customer Privacy and Competition (July 27, 2015). Available at SSRN: https://ssrn.com/abstract=2376614 or http://dx.doi.org/10.2139/ssrn.2376614

Oz Shy (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

HOME PAGE: http://www.frbatlanta.org/research/economists/shy-oz.aspx?panel=1

Rune Stenbacka

Hanken School of Economics ( email )

P.O. Box 479
Arkadiankatu 22
Helsinki, Helsinki 00101
Finland

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