Endogenous privacy and heterogeneous price sensitivity
Ryo Masuyama
MPRA Paper from University Library of Munich, Germany
Abstract:
This study analyzes a model in which two firms, one with profiling technology and one without, compete for old and new markets. In the old market, consumers leave their personal information online, whereas, in the new market, consumers do not. When a firm with profiling technology observes consumers' personal information, it sets personalized prices for them. Additionally, consumers can conceal their personal information by paying privacy costs. We introduce heterogeneity in price sensitivities among consumers into our model. We obtain the following result. For greater heterogeneity in price sensitivities, consumer and total surpluses are maximized with no privacy cost; for lower heterogeneity, a sufficiently high privacy cost is desirable for consumers and society; for intermediate heterogeneity, while consumers prefer no privacy cost, total surplus is maximized at a sufficiently high privacy cost. Therefore, when deciding on privacy policy, authorities should consider the heterogeneity in price sensitivities.
Keywords: personalized pricing; privacy; personal information; heterogeneous consumers; Hotelling model (search for similar items in EconPapers)
JEL-codes: D43 L10 L13 (search for similar items in EconPapers)
Date: 2023-05-14
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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https://mpra.ub.uni-muenchen.de/117316/1/EP_and_HPS_MPRA.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/118567/1/EP_and_HPS_MPRA.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/118525/1/EP_and_HPS_MPRA.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/118522/1/EP_and_HPS_MPRA.pdf revised version (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:117316
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