Online Advertising and Privacy

Alexandre de Cornière () and Romain de Nijs

No 650, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: An online platform makes a profit by auctioning an advertising slot that appears whenever a consumer visits its website. Several firms compete in the auction, and consumers differ in their preferences. Prior to the auction, the platform gathers data which is statistically correlated with consumers' tastes for products. We study the implications of the platform's decision to allow potential advertisers to access the data about consumers' characteristics before they bid. On top of the familiar trade-off between rent extraction and efficiency, we identify a new trade-off: the disclosure of information leads to a better matching between firms and consumers, but results in a higher equilibrum price on the product market. We find that the equilbrium price is an increasing function of the number of firms. As the number of firms becomes large, it is always profitable for the platform to disclose the information, but this need not be efficient, because of the distortion caused by the higher prices. When the quality of the match represents vertical shifts in the demand function, we provide conditions under which disclosure is optimal.

Keywords: Online advertising; privacy; information disclosure; auctions (search for similar items in EconPapers)
JEL-codes: D4 (search for similar items in EconPapers)
Date: 2013-03-22
New Economics Papers: this item is included in nep-com, nep-cta, nep-cwa and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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