Online Privacy and Information Disclosure by Consumers
Forthcoming at American Economic Review
46 Pages Posted: 22 Feb 2018 Last revised: 4 Nov 2019
Date Written: March 17, 2019
I study the welfare and price implications of consumer privacy. A consumer discloses information to a multi-product seller, which learns about his preferences, sets prices, and makes product recommendations. Although the consumer benefits from accurate recommendations, the seller may use the information to price discriminate. I show that the seller prefers to commit to not use information for pricing in order to encourage information disclosure. However, this commitment hurts the consumer, who could be better off by precommitting to withhold some information. In contrast to single-product models, total surplus may be lower if the seller can base prices on information.
Keywords: Information disclosure, Bayesian persuasion, price discrimination, privacy
JEL Classification: D42, D43, D82, D83
Suggested Citation: Suggested Citation