Privacy Regulations, Consumer Empowerment, and Versioning

Chongwoo Choe, Jiajia Cong, Noriaki Matsushima and Shiva Shekhar

No 11769, CESifo Working Paper Series from CESifo

Abstract: Privacy regulations like the General Data Protection Regulation aim to empower consumers with greater transparency and control over their personal data. In response, firms may exercise price discrimination in the form of versioning. This paper studies how these two aspects of privacy regulation—consumer empowerment and versioning—affect market outcomes and welfare. We develop a model where firms earn revenue from sales of service and data monetization, and consumers differ in their preferences for the service and privacy costs incurred when sharing data with the firm. In a monopoly, the firm is better off after regulation because its ability to price discriminate outweighs the effects of increased consumer empowerment. In a duopoly, however, greater consumer choice after regulation intensifies competition, as firms have more ways to deviate from mutually beneficial outcomes. This results in the firm with more data monetization earning smaller profit, while the firm with less data monetization earns larger profit. However, the industry profit as a whole decreases and consumer surplus increases after the regulation. Therefore, the regulation’s impact is nuanced and depends on the market structure. We also examine the regulatory impact on firms’ optimal data-driven revenue models and market entry.

Keywords: privacy regulation; privacy management; versioning; monopoly; competition. (search for similar items in EconPapers)
JEL-codes: D18 D61 K24 L12 L51 L86 (search for similar items in EconPapers)
Date: 2025
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