Opt In Versus Opt Out: A Free-Entry Analysis of Privacy Policies

Jan Bouckaert and Hans Degryse

No 1831, CESifo Working Paper Series from CESifo

Abstract: There is much debate on how the flow of information between firms should be organized, and whether existing privacy laws should be amended. We offer a welfare comparison of the three main current policies towards consumer privacy — anonymity, opt in, and opt out — within a two-period model of localized competition. We show that when consumers find it too costly to opt in or opt out, privacy policies shape firms’ ability to collect and use customer information, and affect their pricing strategy and entry decision differently. The free-entry analysis reveals that social welfare is non-monotonic in the degree of privacy protection. Opt out is the socially preferred privacy policy while opt in socially underperforms anonymity. Consumers never opt out and choose to opt in only when its cost is sufficiently low. Only when opting in is cost-free do the opt-in and opt-out privacy policies coincide.

Keywords: privacy; price discrimination; monopolistic competition; welfare (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Opt in versus opt out: A free-entry analysis of privacy policies (2007)
Working Paper: Opt in versus Opt out: a free-entry analysis of privacy policies (2006)
Working Paper: Opt In versus Opt Out: A Free-Entry Analysis of Privacy Policies (2006)
Working Paper: Opt In versus Opt Out: A Free-Entry Analysis of Privacy Policies (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1831

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