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Privacy Regulation and Online Advertising

Author

Listed:
  • Avi Goldfarb

    () (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

  • Catherine E. Tucker

    () (MIT Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142)

Abstract

Advertisers use online customer data to target their marketing appeals. This has heightened consumers' privacy concerns, leading governments to pass laws designed to protect consumer privacy by restricting the use of data and by restricting online tracking techniques used by websites. We use the responses of 3.3 million survey takers who had been randomly exposed to 9,596 online display (banner) advertising campaigns to explore how privacy regulation in the European Union (EU) has influenced advertising effectiveness. This privacy regulation restricted advertisers' ability to collect data on Web users in order to target ad campaigns. We find that, on average, display advertising became far less effective at changing stated purchase intent after the EU laws were enacted, relative to display advertising in other countries. The loss in effectiveness was more pronounced for websites that had general content (such as news sites), where non-data-driven targeting is particularly hard to do. The loss of effectiveness was also more pronounced for ads with a smaller presence on the webpage and for ads that did not have additional interactive, video, or audio features. This paper was accepted by Pradeep Chintagunta, marketing.

Suggested Citation

  • Avi Goldfarb & Catherine E. Tucker, 2011. "Privacy Regulation and Online Advertising," Management Science, INFORMS, vol. 57(1), pages 57-71, January.
  • Handle: RePEc:inm:ormnsc:v:57:y:2011:i:1:p:57-71
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    File URL: http://dx.doi.org/10.1287/mnsc.1100.1246
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    References listed on IDEAS

    as
    1. Avi Goldfarb & Catherine Tucker, 2011. "Online Display Advertising: Targeting and Obtrusiveness," Marketing Science, INFORMS, vol. 30(3), pages 389-404, 05-06.
    2. Catherine Tucker, 2010. "Social Networks, Personalized Advertising, and Privacy Controls," Working Papers 10-07, NET Institute.
    3. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758, Cowles Foundation for Research in Economics, Yale University.
    4. Avi Goldfarb & Catherine Tucker, 2011. "Rejoinder--Implications of "Online Display Advertising: Targeting and Obtrusiveness"," Marketing Science, INFORMS, vol. 30(3), pages 413-415, 05-06.
    5. Alessandro Acquisti & Hal R. Varian, 2005. "Conditioning Prices on Purchase History," Marketing Science, INFORMS, vol. 24(3), pages 367-381, May.
    6. Amalia R. Miller & Catherine Tucker, 2009. "Privacy Protection and Technology Diffusion: The Case of Electronic Medical Records," Management Science, INFORMS, vol. 55(7), pages 1077-1093, July.
    7. Horrace, William C. & Oaxaca, Ronald L., 2006. "Results on the bias and inconsistency of ordinary least squares for the linear probability model," Economics Letters, Elsevier, vol. 90(3), pages 321-327, March.
    8. Patrali Chatterjee & Donna L. Hoffman & Thomas P. Novak, 2003. "Modeling the Clickstream: Implications for Web-Based Advertising Efforts," Marketing Science, INFORMS, vol. 22(4), pages 520-541, May.
    9. David S. Evans, 2009. "The Online Advertising Industry: Economics, Evolution, and Privacy," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 37-60, Summer.
    10. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    11. Susan Athey & Joshua S. Gans, 2010. "The Impact of Targeting Technology on Advertising Markets and Media Competition," American Economic Review, American Economic Association, vol. 100(2), pages 608-613, May.
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    Keywords

    privacy; online advertising; targeting;

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