Information Revelation and Privacy Protection

Alessandro Bonatti and Rossella Argenziano

No 15203, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a microfoundation for consumers' privacy preferences and examine how it shapes the outcome of regulation. A single consumer interacts sequentially with two heterogeneous firms: the first firm collects data on consumer behavior, which the second firm uses to set a quality level and a price. Thus, the consumer manipulates her behavior to influence the future terms of trade. In equilibrium, manipulation is beneficial to the consumer when the recipient firm is sufficiently similar to the collecting firm (as measured by the relative salience of quality and price of their two products). We then evaluate the impact of privacy regulation, including mandatory transparency, explicit consent requirements, and limits to discriminatory offers. We show that transparency has an ambiguous effect on consumer welfare and that consent requirements are unambiguously beneficial to consumers but that limits to discrimination are harmful to consumers in equilibrium.

Keywords: Consumer privacy; Consumer consent; Personal information; Data linkages; Data rights; Price discrimination; Signaling; Ratchet effect (search for similar items in EconPapers)
JEL-codes: D44 D82 D83 (search for similar items in EconPapers)
Date: 2020-08
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 (5)

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