We Value Your Privacy: Behavior-Based Pricing Under Endogenous Privacy

58 Pages Posted: 21 Jan 2020 Last revised: 25 Jun 2020

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 Universität Berlin (TU Berlin) - Faculty of Economics and Management

Date Written: June 25, 2020

Abstract

This paper analyzes consumers’ privacy choice concerning their data and firms’ ensuing
pricing strategies. Consumers decide whether to reveal private information in
form of cookies. We incorporate this endogenous decision into a duopoly model with
behavior-based pricing. We find unique pure-strategy equilibria for two disclosure rules.
Under revelation to both firms, consumers disclose their information and firms price
discriminate. Under revelation to only one firm, consumers hide their information and
firms price uniformly. In our laboratory experiment we confirm these pricing strategies.
Consumers, however, have a higher than predicted disclosure rate which is driven by
learning effects and privacy concern.

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 (June 25, 2020). 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 Universität Berlin (TU Berlin) - Faculty of Economics and Management ( email )

Berlin, 10585
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
63
Abstract Views
379
rank
378,884
PlumX Metrics