Competition and the Two Margins of Privacy

31 Pages Posted: 16 May 2024 Last revised: 29 Jan 2025

Date Written: May 2, 2024

Abstract

This article analyzes the relationship between privacy protection and market competition. We consider a model where firms collect data to price discriminate consumers in a competitive product market, and we distinguish two margins of privacy. Firms strategically choose the number of consumers on whom they collect data (the extensive margin of privacy) as well as the precision of information (the intensive margin of privacy). We show that policymakers can effciently protect both margins of privacy and consumer surplus by safeguarding the intensive margin. Indeed, when both strategic variables are strategic complements, restricting the amount of information that firms have on each consumer (the intensive margin) also induces firms to collect data on fewer consumers, thereby protecting the extensive margin of privacy. This softens the intensity of competition but also reduces rent extraction by firms , and total consumer surplus increases. When both variables are strategic substitutes, protecting the intensive margin harms privacy at the extensive margin, but still increases consumer surplus.

Keywords: Privacy, Digital economics, Competition

Suggested Citation

Bounie, David and Dubus, Antoine and Waelbroeck, Patrick, Competition and the Two Margins of Privacy (May 2, 2024). Available at SSRN: https://ssrn.com/abstract=4815096 or http://dx.doi.org/10.2139/ssrn.4815096

David Bounie (Contact Author)

Télécom Paris ( email )

19 Place Marguerite Perey
Palaiseau, 91120
France

Antoine Dubus

ETH Zürich ( email )

LEE G104
Leonhardstrasse 21
Zurich
Switzerland

Patrick Waelbroeck

Télécom Paris ( email )

19 Place Marguerite Perey
Palaiseau, 91120
France

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