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The bright side of the GDPR: Welfare-improving privacy management

Author

Listed:
  • Chongwoo Choe
  • Noriaki Matsushima
  • Shiva Shekhar

Abstract

We study the GDPR's opt-in requirement in a model with a firm that provides a digital service and consumers who are heterogeneous in their valuations of the firm's service as well as the privacy costs incurred when sharing personal data with the firm. We show that the GDPR boosts demand for the service by allowing consumers with high privacy costs to buy the service without sharing data. The increased demand leads to a higher price but a smaller quantity of shared data. If the firm's revenue is largely usage-based rather than data-based, then both the firm's profit and consumer surplus increase after the GDPR, implying that the GDPR can be welfare-improving. But if the firm's revenue is largely from data monetization, then the GDPR can reduce the firm's profit and consumer surplus.

Suggested Citation

  • Chongwoo Choe & Noriaki Matsushima & Shiva Shekhar, 2024. "The bright side of the GDPR: Welfare-improving privacy management," ISER Discussion Paper 1246, Institute of Social and Economic Research, The University of Osaka.
    • Handle: RePEc:dpr:wpaper:1246
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    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • K24 - Law and Economics - - Regulation and Business Law - - - Cyber Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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