The Value of Personal Information in Markets with Endogenous Privacy

40 Pages Posted: 7 Aug 2015

See all articles by Rodrigo Montes

Rodrigo Montes

University of Toulouse 1 - Toulouse School of Economics (TSE)

Wilfried Sand‐Zantman

University of Toulouse 1 - Toulouse School of Economics (TSE)

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Date Written: August 5, 2015

Abstract

This paper investigates the effects of price discrimination on prices, profits and consumer surplus, when one or more competing firms can use consumers' private information to price discriminate and consumers can pay a privacy cost to avoid it. While a monopolist always benefits from higher privacy costs, this is not true in the competing duopoly case. In this last case, firms' individual profits are decreasing while consumer surplus is increasing in the privacy cost. Finally, under competition, we show that the optimal selling strategy for the owner of consumer data consists in dealing exclusively with one firm in order to create maximal competition between the winner and the loser of data. This brings inefficiencies, and we show that policy makers should concentrate their attention on exclusivity deals rather than making it easier for consumers to protect their privacy.

Suggested Citation

Montes, Rodrigo and Sand‐Zantman, Wilfried and Valletti, Tommaso M., The Value of Personal Information in Markets with Endogenous Privacy (August 5, 2015). CEIS Working Paper No. 352. Available at SSRN: https://ssrn.com/abstract=2640177 or http://dx.doi.org/10.2139/ssrn.2640177

Rodrigo Montes

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Wilfried Sand‐Zantman

University of Toulouse 1 - Toulouse School of Economics (TSE)

Place Anatole-France
Toulouse Cedex, F-31042
France

Tommaso M. Valletti (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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