Working Paper: CEPR ID: DP15203
Authors: Rossella Argenziano; Alessandro Bonatti
Abstract: We assess the efficacy of existing privacy regulations with privacy-conscious consumers. We develop a model of data linkages where a consumer interacts sequentially with two firms: one firm collects data on consumer behavior, and the other firm leverages the data to set a quality level and a price. A data linkage benefits the consumer in equilibrium when the recipient firm is sufficiently similar to the collecting firm. We endogenize linkage formation under numerous instances of privacy regulation. Voluntary consentrequirements are beneficial to consumers in equilibrium but blanket bans on discriminatory price and quality offers are harmful.
Keywords: Transparency; Ratchet Effect; Consumer Privacy; Privacy Regulation; Consumer Consent; Data Linkages; Data Rights; Price Discrimination
JEL Codes: D44; D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| voluntary consent requirements (K36) | consumer welfare (D69) |
| blanket bans on discriminatory pricing and quality offers (L42) | consumer welfare (D69) |
| similarity between firms (L20) | formation of data linkages (Y10) |
| type of privacy regulation (K24) | formation of data linkages (Y10) |
| first-period consumer behavior (D19) | future interactions with firms (L14) |
| future interactions with firms (L14) | first-period pricing and quality outcomes (L11) |
| first-period pricing and quality outcomes (L11) | consumer surplus (D46) |