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Privacy and Quality

Author

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  • Lefouili, Yassine
  • Toh, Ying Lei

Abstract

This paper analyzes the effects of a privacy regulation that caps the level of data disclosure on investment in quality and social welfare. We develop a model in which a monopolist offers a service to consumers for free, and derives revenues from disclosing user data to third parties. Consumers choose whether to use the service and how much information to provide. We find that when the market is fully covered, a disclosure cap set prior to the firm's investment decision (an ex ante cap) always decreases quality level, but is socially desirable if quality and information are not strong complements from consumers' perspective. When the market is partially covered, quality may increase under an ex ante cap and, setting a cap may be socially desirable even when quality and information are strongly complementary. Finally, we extend our analysis to scenarios involving heterogeneous third-party data buyers, a consumer-surplus-maximizing regulator and the regulation of disclosure ex post.

Suggested Citation

  • Lefouili, Yassine & Toh, Ying Lei, 2017. "Privacy and Quality," IDEI Working Papers 867, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jan 2018.
  • Handle: RePEc:ide:wpaper:31630
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    References listed on IDEAS

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    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. Marc Bourreau & Bernard Caillaud & Romain De Nijs, 2018. "Taxation of a digital monopoly platform," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(1), pages 40-51, February.
    3. 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.
    4. 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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    Citations

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    Cited by:

    1. Krämer, Jan & Stüdlein, Nadine, 2019. "Data portability, data disclosure and data-induced switching costs: Some unintended consequences of the General Data Protection Regulation," Economics Letters, Elsevier, vol. 181(C), pages 99-103.
    2. Jean-Marc Zogheib & Marc Bourreau, 2021. "Privacy, Competition, and Multi-Homing," EconomiX Working Papers 2021-15, University of Paris Nanterre, EconomiX.
    3. 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".
    4. 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.

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    More about this item

    Keywords

    Privacy Regulation; Data Disclosure; 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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