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Privacy Regulation and Quality Investment


  • Yassine Lefouili
  • Ying Lei Toh


This paper analyzes whether a privacy regulation that restricts a dominant firm?s data disclosure level harms the firm?s incentives to invest in service quality and thereby harms social welfare. We study how the regulation affects the privacy and quality choices of a monopoly service provider, who derives revenues solely from disclosing user data to third parties, as well as how those choices in turn affect consumers? participation and information-sharing decisions. We show that the regulation does not always harm investment incentives; moreover, even when it does, it may still improve social welfare.

Suggested Citation

  • Yassine Lefouili & Ying Lei Toh, 2019. "Privacy Regulation and Quality Investment," Research Working Paper RWP 19-5, Federal Reserve Bank of Kansas City.
  • Handle: RePEc:fip:fedkrw:rwp19-05
    DOI: 10.18651/RWP2019-05

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    References listed on IDEAS

    1. Avi Goldfarb & Catherine Tucker, 2012. "Privacy and Innovation," NBER Chapters, in: Innovation Policy and the Economy, Volume 12, pages 65-89, National Bureau of Economic Research, Inc.
    2. 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.
    3. Anja Lambrecht & Avi Goldfarb & Alessandro Bonatti & Anindya Ghose & Daniel Goldstein & Randall Lewis & Anita Rao & Navdeep Sahni & Song Yao, 2014. "How do firms make money selling digital goods online?," Marketing Letters, Springer, vol. 25(3), pages 331-341, September.
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    Cited by:

    1. Jin, Ginger Zhe & Wagman, Liad, 2021. "Big data at the crossroads of antitrust and consumer protection," Information Economics and Policy, Elsevier, vol. 54(C).
    2. Loertscher, Simon & Marx, Leslie M., 2020. "Digital monopolies: Privacy protection or price regulation?," International Journal of Industrial Organization, Elsevier, vol. 71(C).
    3. Jullien, Bruno & Lefouili, Yassine & Riordan, Michael, 2018. "Privacy Protection, Security, and Consumer Retention," TSE Working Papers 18-947, Toulouse School of Economics (TSE), revised Jun 2020.
    4. Chiara Conti & Pierfrancesco Reverberi, 2019. "Price discrimination and product quality under opt-in privacy regulation," DIAG Technical Reports 2019-07, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    5. Conti, Chiara & Reverberi, Pierfrancesco, 2021. "Price discrimination and product quality under opt-in privacy regulation," Information Economics and Policy, Elsevier, vol. 55(C).

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    More about this item


    Privacy Regulation; Data Disclosure; Investment; Quality;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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