Privacy, Information Acquisition, and Market Competition
45 Pages Posted: 28 Mar 2017 Last revised: 10 Jan 2019
Date Written: October 22, 2018
This paper analyzes how the endogenous availability of personal information affects market outcomes in a two-sided market where sellers target advertisements to individuals who have varying privacy concerns. I focus on how a market entrant that has worse targeting technology than an incumbent is affected by a lack of information. I show that an entrant is disproportionately affected by consumers' privacy concerns. The welfare analysis shows that privacy concerns and the resulting market outcomes may lower consumer surplus and social welfare. Therefore, individually optimal decisions on data disclosure might not be socially optimal when aggregated. The empirical evidence, which is based on Google Android App Market data, corroborates the hypotheses in the model and the effectiveness of specific policy remedies that are derived from the theoretical findings.
Keywords: Privacy; Data Intermediary; On-line Advertising; Targeted Advertising; Vertical Integration
JEL Classification: D21; D22; D83; L15; L22; L42; L52
Suggested Citation: Suggested Citation