The Economic Consequences of Data Privacy Regulation: Empirical Evidence from GDPR

57 Pages Posted: 30 Mar 2020 Last revised: 8 Apr 2020

See all articles by Guy Aridor

Guy Aridor

Columbia University; Columbia University, Graduate School of Arts and Sciences, Department of Economics

Yeon-Koo Che

Columbia University

Tobias Salz

MIT

Multiple version iconThere are 2 versions of this paper

Date Written: March 2020

Abstract

This paper studies the effects of the EU’s General Data Protection Regulation (GDPR) on the ability of firms to collect consumer data, identify consumers over time, accrue revenue via online advertising, and predict their behavior. Utilizing a novel dataset by an intermediary that spans much of the online travel industry, we perform a difference-in-differences analysis that exploits the geographic reach of GDPR. We find a 12.5% drop in the intermediary-observed consumers as a result of the new opt-in requirement of GDPR. At the same time, the remaining consumers are observable for a longer period of time. We provide evidence that this pattern is consistent with the hypothesis that privacy-conscious consumers substitute away from less efficient privacy protection (e.g, cookie deletion) to explicit opt out, a process that would reduce the number of artificially short consumer histories. Further in keeping with this hypothesis, we observe that the average value of the remaining consumers to advertisers has increased, offsetting most of the losses from consumers that opt out. Finally, we find that the ability to predict consumer behavior by the intermediary’s proprietary machine learning algorithm does not significantly worsen as a result of the changes induced by GDPR. Our results highlight the externalities that consumer privacy decisions have both on other consumers and for firms.

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Suggested Citation

Aridor, Guy and Che, Yeon-Koo and Salz, Tobias, The Economic Consequences of Data Privacy Regulation: Empirical Evidence from GDPR (March 2020). NBER Working Paper No. w26900, Available at SSRN: https://ssrn.com/abstract=3563968

Guy Aridor (Contact Author)

Columbia University ( email )

420 West 118th St.
New York, NY 10027
United States

Columbia University, Graduate School of Arts and Sciences, Department of Economics

420 W. 118th Street
New York, NY 10027
United States

Yeon-Koo Che

Columbia University ( email )

420 W. 118th Street
New York, NY 10027

Tobias Salz

MIT ( email )

50 Memorial Dr
Cambridge, MA 02142
United States

HOME PAGE: http://https://economics.mit.edu/faculty/tsalz

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