Event Date
"Consumer Privacy Disclosure in Competitive Markets".
Abstract. I study how competition shapes the implications of consumer privacy on market outcomes. The paper presents a model in which multi-product sellers compete in prices, product recommendations, and the use of consumer data. The consumer (she), prior to observing her values for the products, strategically discloses information about her product preferences to the uninformed sellers. Allowing for consumer control enables the consumer to navigate the trade-off between the benefits of more accurate product recommendations and the potential cost of price discrimination. I show that in competitive environments, the consumer’s optimal disclosure rule fully reveals her most valuable product to sellers, regardless of whether or not sellers commit to not using her information for pricing, and this behavior maximizes her welfare. The key observation is that the relationship between the demand elasticity of a recommended product and the consumer’s disclosure level in competitive environments is exactly the opposite compared to the environment without competition. Additionally, I show that the competing sellers exhibit indifference towards committing or not committing to refrain from using consumer data for pricing. The results suggest that, in competitive environments, contrary to what the privacy paradox predicts, the consumer fully reveals her product preferences, but she is not harmed because it maximizes her welfare.