A Model of Advertiser - Portal Contracts: Personalization Strategies Under Privacy Concerns

Information Technology and Management, Vol. 7, No. 1, 2006

Posted: 23 Nov 2004

See all articles by Ramnath K Chellappa

Ramnath K Chellappa

Emory University - Goizueta Business School

Shivendu Shivendu

University of California, Irvine - The Paul Merage School of Business

Abstract

Online portals provide personalization for "free" since the information acquired from consumers' usage of these services is valuable for advertising and targeted marketing purposes. Consumers' usage of services is determined by the tradeoff between their marginal value for personalized services and the resulting information privacy concerns and is captured by their personalization for privacy (P4P) ratio. A portal's decision to offer personalized services is dependent upon its cost of offering the services and revenue due to advertisers' marginal value for information (MVI) acquired therein. Through three models, our paper examines the strategic interaction between a portal that determines the service level to be offered and advertisers who pay the portal for placing advertisements through which they acquire information. Our first model of an independent portal finds that while all profits are increasing in the advertiser's MVI, with increasing P4P ratio the advertiser's profits are increasing at a faster rate than the portal's profits. In our second model, we consider an information sharing regime between two advertisers and find that a high MVI advertiser has a distinct first-mover advantage in announcing the services rate for the entire market. Our final model considers a portal that has its own advertising capabilities and we find that while this case is superior to others in the high MVI advertiser's and portal's profits, the consumer welfare and overall social welfare is dependent on the relative valuations of the two advertisers.

Keywords: Electronic commerce, portals, personalization, privacy, advertising, game theory

JEL Classification: D42, D82

Suggested Citation

Chellappa, Ramnath K. and Shivendu, Shivendu, A Model of Advertiser - Portal Contracts: Personalization Strategies Under Privacy Concerns. Information Technology and Management, Vol. 7, No. 1, 2006, Available at SSRN: https://ssrn.com/abstract=623063

Ramnath K. Chellappa (Contact Author)

Emory University - Goizueta Business School ( email )

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Atlanta, GA 30322-2722
United States
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Shivendu Shivendu

University of California, Irvine - The Paul Merage School of Business ( email )

SB 342
Irvine, CA 92617
United States

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