Privacy, Competition, and Multi-Homing

Two firms compete in prices and information disclosure levels. Firms derive revenues from two possible channels, i.e., by selling their service to consumers and by exploiting user data, sold to a monopoly data broker. A consumer signing up to one firm's service decides on the amount of personal information to provide. In a single-homing framework, firms engage in either a strict privacy regime with no information disclosure and high prices or a flexible privacy regime with positive disclosure levels and low prices, depending on consumer valuations. With the possibility of multi-homing, firms face issues in the monetization of multi-homing user data, which affects privacy regimes. On top of consumer valuations, the incentives to multi-home and product differentiation also impact firms' strategies. Firms may even end up engaging in a zero-privacy regime with maximal disclosure levels if monetization issues on multi-homing user data are not too significant.