Privacy, Information Acquisition, and Market Competition

45 Pages Posted: 28 Mar 2017 Last revised: 10 Jan 2019

See all articles by Soo Jin Kim

Soo Jin Kim

ShanghaiTech University - School of Entrepreneurship and Management

Date Written: October 22, 2018

Abstract

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

Kim, Soo Jin, Privacy, Information Acquisition, and Market Competition (October 22, 2018). Available at SSRN: https://ssrn.com/abstract=2940985 or http://dx.doi.org/10.2139/ssrn.2940985

Soo Jin Kim (Contact Author)

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

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