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Privacy and Personalization in a Dynamic Model

Author

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  • Chen Yufei

    (School of Economics, 12391 Nanjing University of Finance and Economics , Nanjing, China)

Abstract

This paper studies a two-period model with a monopolist and a consumer. The firm makes two offers (product-price pairs) in the first period and makes one offer in the second period. The single consumer’s type is unknown to the firm, and she chooses at most one offer each period. Products are horizontally differentiated and the consumer prefers products closer to her type. Two privacy settings are considered. In one setting, the consumer cannot hide her purchase history (i.e., cannot opt out) whereas she can in the other setting. We characterize the firm-optimal equilibria in both settings and show that when the opt-out choice is added, the ex-ante producer surplus and social surplus increase while the ex-ante consumer surplus decreases. How the interim consumer surplus changes depends on her type. Our results suggest that, in some cases, privacy protection tools may inadvertently harm consumers while benefiting firms. Therefore, regulators should account for the dynamic and strategic interactions between these two sides when evaluating the implications of such tools.

Suggested Citation

  • Chen Yufei, 2025. "Privacy and Personalization in a Dynamic Model," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 25(2), pages 375-404.
    • Handle: RePEc:bpj:bejtec:v:25:y:2025:i:2:p:375-404:n:1003
    DOI: 10.1515/bejte-2024-0085
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    Keywords

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    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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