Journal
MANAGEMENT SCIENCE
Volume 65, Issue 3, Pages 1342-1362Publisher
INFORMS
DOI: 10.1287/mnsc.2017.2989
Keywords
price targeting; privacy; consumer data; big data; marketing
Funding
- Agence Nationale de la Recherche [ANR-12-BSH1-0009]
- Orange under the IDEI/Orange convention
- Agence Nationale de la Recherche (ANR) [ANR-12-BSH1-0009] Funding Source: Agence Nationale de la Recherche (ANR)
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We investigate the effects of price discrimination on prices, profits, and consumer surplus when (a) at least one competing firm can use consumers' private information to price discriminate yet (b) consumers can prevent such use by paying a privacy cost. Unlike a monopolist, competing duopolists do not always benefit from a higher privacy cost because each firm's profit decreases-and consumer surplus increases-with that cost. Under such competition, the optimal strategy for an owner of consumer data that sells information in a single block is selling to only one firm, thereby maximizing the stakes for rival buyers. The resulting inefficiencies imply that policy makers should devote more attention to discouraging exclusivity deals and less to ensuring that consumers can easily protect their privacy.
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