Working Paper: NBER ID: w26592
Authors: S. Nageeb Ali; Gregory Lewis; Shoshana Vasserman
Abstract: Firms have ever increasing access to consumer data, which they use to personalize their advertising and to price discriminate. This raises privacy concerns. Policymakers have argued in response that consumers should be given control over their data, able to choose what to share and when. Since firms learn about a consumer’s preferences both from what they do and do not disclose, the equilibrium implications of consumer control are unclear. We study whether such measures improve consumer welfare in monopolistic and in competitive markets. We find that consumer control can improve consumer welfare relative to both perfect price discrimination and uniform pricing. First, consumers can use disclosure to amplify competitive forces. Second, consumers can disclose information to induce even a monopolist to lower prices. Whether consumer control improves welfare depends on the disclosure technology and market competitiveness. Simple disclosure technologies suffice in competitive markets. When facing a monopolist, a consumer needs partial disclosure possibilities to obtain any welfare gains.
Keywords: Voluntary Disclosure; Personalized Pricing; Consumer Welfare; Market Competition
JEL Codes: D4; D8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| consumer control over data disclosure (D18) | improved consumer welfare (D18) |
| consumer control over data disclosure (D18) | lower prices (P22) |
| simple disclosure technologies (O36) | improved consumer welfare (D18) |
| partial disclosure (Y60) | improved consumer welfare (D18) |
| consumer control over data disclosure (D18) | induce monopolist to lower prices (L12) |