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Targeted advertising, platform competition and privacy

Author

Listed:
  • Henk Kox

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Bas Straathof

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Gijsbert Zwart

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

Targeted advertising can benefit consumers through lower prices for access to websites. Yet, if consumers dislike that websites collect their personal information, their welfare may go down. We study competition for consumers between websites that can show targeted advertisements. We find that more targeting increases competition and reduces the websites' profits, but yet in equilibrium websites choose maximum targeting as they cannot credibly commit to low targeting. A privacy protection policy can be beneficial for both consumers and websites. If consumers are heterogeneous in their concerns for privacy, a policy that allows choice between two levels of privacy will be better. Optimal privacy protection takes into account that the more intense competition on the high-targeting market segment also benefits consumers on the less competitive segment. Consumer surplus is maximized by allowing them a choice between a high targeting regime and a low targeting regime which affords more privacy.

Suggested Citation

  • Henk Kox & Bas Straathof & Gijsbert Zwart, 2014. "Targeted advertising, platform competition and privacy," CPB Discussion Paper 280, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:280
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    References listed on IDEAS

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    1. Santiago R. Balseiro & Omar Besbes & Gabriel Y. Weintraub, 2012. "Auctions for Online Display Advertising Exchanges: Approximations and Design," Working Papers 12-11, NET Institute.
    2. 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.
    3. Alessandro Acquisti & Curtis Taylor & Liad Wagman, 2016. "The Economics of Privacy," Journal of Economic Literature, American Economic Association, vol. 54(2), pages 442-492, June.
    4. Youngwoo Koh, 2013. "Keyword auctions with budget-constrained bidders," Review of Economic Design, Springer;Society for Economic Design, vol. 17(4), pages 307-321, December.
    5. Oecd, 2013. "Exploring the Economics of Personal Data: A Survey of Methodologies for Measuring Monetary Value," OECD Digital Economy Papers 220, OECD Publishing.
    6. Janice Y. Tsai & Serge Egelman & Lorrie Cranor & Alessandro Acquisti, 2011. "The Effect of Online Privacy Information on Purchasing Behavior: An Experimental Study," Information Systems Research, INFORMS, vol. 22(2), pages 254-268, June.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Sabatino, Lorien & Sapi, Geza, 2019. "Online privacy and market structure: Theory and evidence," DICE Discussion Papers 308, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • M38 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Government Policy and Regulation

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