IDEAS home Printed from
   My bibliography  Save this paper

Privacy in Competitive Markets


  • Taylor, Curtis R.


Personal privacy is studied in the context of a competitive product (or labor) market. In the first stage of the game, firms that sell homogeneous goods or services (e.g., insurance, credit, or rental housing) post prices they promise to charge approved applicants. In the second stage, each consumer chooses whether to apply to one of the firms. Next, the firms acquire information about their applicants and sell the good to the ones they approve. Contracts are incomplete in the sense that the amount of information firms acquire cannot be observed. In the unique subgame perfect equilibrium outcome, firms post the lowest price consistent with zero economic profit. Unfortunately, this low price gives them incentives to acquire excessive amounts of information about their applicants. It is shown that this inefficient infringement of privacy is exacerbated if firms have the opportunity to sell customer information. Also, in an effort to preserve privacy, consumers typically demand inefficiently low levels of output. Finally, it is shown that if rejected consumers can continue to apply for the good at different firms, then the resulting adverse selection may seriously undermine the market and generate a situation in which all parties would be better off if no information was collected at all.

Suggested Citation

  • Taylor, Curtis R., 2003. "Privacy in Competitive Markets," Working Papers 03-10, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:03-10

    Download full text from publisher

    File URL:
    File Function: main text
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Calzolari, Giacomo & Pavan, Alessandro, 2006. "On the optimality of privacy in sequential contracting," Journal of Economic Theory, Elsevier, vol. 130(1), pages 168-204, September.

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:duk:dukeec:03-10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Department of Economics Webmaster). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.