We value your privacy: Behavior-based pricing under endogenous privacy

78 Pages Posted: 21 Jan 2020 Last revised: 10 May 2022

See all articles by Friederike Heiny

Friederike Heiny

Humboldt University of Berlin - School of Business and Economics

Tianchi Li

Humboldt University of Berlin - School of Business and Economics

Michel Tolksdorf

Technische Universit├Ąt Berlin (TU Berlin) - Faculty of Economics and Management

Date Written: May 10, 2022

Abstract

We study a duopoly model of behavior-based pricing where consumers decide whether they reveal their data or remain anonymous. We contrast two data policies: in an open data policy, revealed data is accessible by both sellers in the market. The unique equilibrium displays that all consumers reveal their data, while firms price discriminate causing welfare losses due to poaching. In an exclusive data policy, revealed data is only accessible by the one firm a consumer bought from. In equilibrium, consumers anonymize, prices are uniform and the market is efficient. We test these contrasting predictions in an experiment. In the open data treatment, subjects predominantly act as predicted. In the exclusive data treatment, buyers initially reveal their data as sellers reward loyalty. Subsequently, buyers adjust more towards anonymization, when sellers begin to employ poaching strategies.

Keywords: behavior-based pricing, privacy, laboratory experiment

JEL Classification: C91, D11, D43, L13

Suggested Citation

Heiny, Friederike and Li, Tianchi and Tolksdorf, Michel, We value your privacy: Behavior-based pricing under endogenous privacy (May 10, 2022). Available at SSRN: https://ssrn.com/abstract=3508762 or http://dx.doi.org/10.2139/ssrn.3508762

Friederike Heiny (Contact Author)

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Tianchi Li

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Michel Tolksdorf

Technische Universit├Ąt Berlin (TU Berlin) - Faculty of Economics and Management ( email )

Berlin, 10585
Germany

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