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Customer Privacy and Competition

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  • Oz Shy
  • Rune Stenbacka

Abstract

We analyze how different degrees of privacy protection affect industry profits, consumer welfare, and total welfare in a model with switching costs. Firms earn higher profits under weak privacy protection compared with strong or no privacy protection. The relationship between the degree of privacy protection and equilibrium profits is not monotonic. Consumer surplus and total welfare increase with the degree of privacy protection unless firms recognize consumer‐specific switching costs. In that case, pricing conditional on switching costs has favorable implications for consumer surplus and total welfare.

Suggested Citation

  • Oz Shy & Rune Stenbacka, 2016. "Customer Privacy and Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(3), pages 539-562, September.
    • Handle: RePEc:bla:jemstr:v:25:y:2016:i:3:p:539-562
    DOI: 10.1111/jems.12157
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    Cited by:

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    2. Rodrigo Montes & Wilfried Sand-Zantman & Tommaso Valletti, 2019. "The Value of Personal Information in Online Markets with Endogenous Privacy," Management Science, INFORMS, vol. 65(3), pages 1342-1362, March.
    3. Chen, Chen & Duan, Yongrui, 2022. "Impact of personalization and privacy concerns on information disclosure and pricing," Journal of Retailing and Consumer Services, Elsevier, vol. 69(C).
    4. Loertscher, Simon & Marx, Leslie M., 2020. "Digital monopolies: Privacy protection or price regulation?," International Journal of Industrial Organization, Elsevier, vol. 71(C).
    5. Clavorà Braulin, Francesco & Valletti, Tommaso, 2016. "Selling customer information to competing firms," Economics Letters, Elsevier, vol. 149(C), pages 10-14.
    6. Garella, Paolo G. & Laussel, Didier & Resende, Joana, 2021. "Behavior based price personalization under vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 76(C).
    7. Jean-Marc Zogheib & Marc Bourreau, 2021. "Privacy, Competition, and Multi-Homing," EconomiX Working Papers 2021-15, University of Paris Nanterre, EconomiX.
    8. Yiquan Gu & Leonardo Madio & Carlo Reggiani, 2019. "Exclusive Data, Price Manipulation and Market Leadership," CESifo Working Paper Series 7853, CESifo.
    9. Jin, Ginger Zhe & Wagman, Liad, 2021. "Big data at the crossroads of antitrust and consumer protection," Information Economics and Policy, Elsevier, vol. 54(C).
    10. Sumit Shrivastav, 2023. "Profitability of behavior-based price discrimination," Marketing Letters, Springer, vol. 34(4), pages 535-547, December.
    11. Stefano Colombo & Clara Graziano & Aldo Pignataro, 2023. "Personalized Pricing with Imperfect Customer Recognition," CESifo Working Paper Series 10455, CESifo.
    12. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    13. Takaomi Notsu, 2023. "Collusion with capacity constraints under a sales maximization rationing rule," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(2), pages 485-516, June.
    14. Oliver Budzinski & Annika Stöhr, 2019. "Competition policy reform in Europe and Germany – institutional change in the light of digitization," European Competition Journal, Taylor & Francis Journals, vol. 15(1), pages 15-54, January.
    15. Miettinen, Topi & Stenbacka, Rune, 2015. "Personalized pricing versus history-based pricing: implications for privacy policy," Information Economics and Policy, Elsevier, vol. 33(C), pages 56-68.
    16. Sabatino, Lorien & Sapi, Geza, 2022. "Online privacy and market structure: Theory and evidence," Information Economics and Policy, Elsevier, vol. 60(C).
    17. Tommaso Valletti & Jiahua Wu, 2020. "Consumer Profiling with Data Requirements: Structure and Policy Implications," Production and Operations Management, Production and Operations Management Society, vol. 29(2), pages 309-329, February.
    18. Blades, Nicholas & Herrera-González, Fernando, 2016. "An Economic Analysis of Personal Data Protection Obligations in the European Union," 27th European Regional ITS Conference, Cambridge (UK) 2016 148661, International Telecommunications Society (ITS).
    19. Masuyama, Ryo, 2023. "Endogenous privacy and heterogeneous price sensitivity," MPRA Paper 117316, University Library of Munich, Germany.
    20. Sumit Shrivastav, 2021. "Price discrimination with imperfect consumer recognition," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-017, Indira Gandhi Institute of Development Research, Mumbai, India.
    21. De Nijs, Romain, 2017. "Behavior-based price discrimination and customer information sharing," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 319-334.
    22. Kuerbis, Brenden & Mueller, Milton, 2023. "Exploring the role of data enclosure in the digital political economy," Telecommunications Policy, Elsevier, vol. 47(8).
    23. Budzinski, Oliver, 2016. "Aktuelle Herausforderungen der Wettbewerbspolitik durch Marktplätze im Internet," Ilmenau Economics Discussion Papers 103, Ilmenau University of Technology, Institute of Economics.
    24. Pan, Weihua & Cao, Hang & Liu, Ying, 2023. "“Green” innovation, privacy regulation and environmental policy," Renewable Energy, Elsevier, vol. 203(C), pages 245-254.

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