Opt In versus Opt Out: A Free-Entry Analysis of Privacy Policies

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Opt In versus Opt Out: A Free-Entry Analysis of Privacy Policies

Author Info

Bouckaert J.
Degryse H.

Additional information is available for the following registered author(s):

Hans Degryse

Abstract

There is much debate on how the how of information between firms should be organized, and whether existing privacy laws should be amended. We offer a welfare comparison of the three main current policies towards consumer privacy - anonymity, opt in, and opt out - within a two-period model of localized competition. We show that when consumers find it too costly to opt in or opt out - such that the default is the policy that rules, privacy policies shape firms’ ability to collect and use customer information, and affect their pricing strategy and entry decision differently. The free-entry analysis reveals that social welfare is non-monotonic in the degree of privacy protection. Opt out is the socially preferred privacy policy while opt in socially underperforms anonymity. Consumers never opt out and choose to opt in only when its cost is sufficiently low. Only when opting in is cost-free do the opt-in and opt-out privacy policies coincide.

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Paper provided by University of Antwerp, Faculty of Applied Economics in its series Working Papers with number 2007025.

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Length: 27 pages
Date of creation: Nov 2007
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Handle: RePEc:ant:wpaper:2007025

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Paper
- Bouckaert, Jan & Degryse, Hans, 2006. "Opt in versus opt out : a free-entry analysis of privacy policies," Discussion Paper 96, Tilburg University, Center for Economic Research. [Downloadable!]
- Bouckaert, J.M.C. & Degryse, H.A., 2006. "Opt in Versus Opt out: A Free-Entry Analysis of Privacy Policies," Discussion Paper 2006-024, Tilburg University, Tilburg Law and Economic Center.
- Jan Bouckaert & Hans Degryse, 2006. "Opt In Versus Opt Out: A Free-Entry Analysis of Privacy Policies," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-12-15 (All new papers)
NEP-COM-2007-12-15 (Industrial Competition)
NEP-MIC-2007-12-15 (Microeconomics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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