Behavior-Based Price Discrimination under Endogenous Privacy

Friederike Heiny, Tianchi Li and Michel Tolksdorf
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Friederike Heiny: HU Berlin
Tianchi Li: HU Berlin
Michel Tolksdorf: TU Berlin

No 228, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: This paper analyzes consumers’ privacy choice concerning their private data and firms’ ensuing pricing strategy. The General Data Protection Regulation passed by the European Union in May 2018 allows consumers to decide whether to reveal private information in the form of cookies to an online seller. By incorporating this endogenous decision into a duopoly model with behavior-based pricing, we find two contrasting equilibria. Under revelation to both firms, consumers disclose their information. Under revelation to only one firm, consumers hide their information. Based on the model, we design a laboratory experiment. We find that there is a large share of consumers who reveal their private data. Particularly, less privacy-concerned subjects and subjects in the setting where only one firm receives information are more likely to reveal information.

Keywords: behavior-based pricing; privacy; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 D11 D43 L13 (search for similar items in EconPapers)
Date: 2020-01-20
New Economics Papers: this item is included in nep-com, nep-exp and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:228

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