Dynamic Privacy Choices

Abstract

I study a dynamic model of consumer privacy and platform data collection. In each period, consumers choose their level of platform activity. Greater activity generates more information about the consumer, thereby increasing platform profits. Although consumers value their privacy, the platform can collect information by gradually lowering the level of privacy protection. In the long run, consumers become “addicted” to the platform: They lose privacy and receive low payoffs, but choose high activity levels. If the platform cannot commit to future privacy policies, there is also an equilibrium in which the platform offers the highest privacy protection and fails to collect any information.

Keywords: platform, privacy, personal data, addiction

JEL Classification: D42, D43