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Online Advertising and Privacy

  • Alexandre de Cornière
  • Romain De Nijs

An online platform makes a profit by auctioning an advertising slot that appears whenever a consumer visits its website.� Several firms compete in the auction, and consumers differ in their preferences.� Prior to the auction, the platform gathers data which is statistically correlated with consumers' tastes for products.� We study the implications of the platform's decision to allow potential advertisers to access the data about consumers' characteristics before they bid.� On top of the familiar trade-off between rent extraction and efficiency, we identify a new trade-off: the disclosure of information leads to a better matching between firms and consumers, but results in a higher equilibrum price on the product market.� We find that the equilbrium price is an increasing function of the number of firms.� As the number of firms becomes large, it is always profitable for the platform to disclose the information, but this need not be efficient, because of the distortion caused by the higher prices.� When the quality of the match represents vertical shifts in the demand function, we provide conditions under which disclosure is optimal.

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File URL: http://www.economics.ox.ac.uk/materials/papers/12662/paper650.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 650.

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Date of creation: 22 Mar 2013
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Handle: RePEc:oxf:wpaper:650
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  1. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
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  10. Vincent Conitzer & Curtis R. Taylor & Liad Wagman, 2012. "Hide and Seek: Costly Consumer Privacy in a Market with Repeat Purchases," Marketing Science, INFORMS, vol. 31(2), pages 277-292, March.
  11. Giacomo Calzolari & Alessandro Pavan, 2005. "On the Optimality of Privacy in Sequential Contracting," Discussion Papers 1404, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, vol. 121(556), pages F309-F328, November.
  13. Simon Board, 2009. "Revealing information in auctions: the allocation effect," Economic Theory, Springer, vol. 38(1), pages 125-135, January.
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  15. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  16. Simon GB Cowan & Simon Cowan, 2004. "The welfare effects of third-degree price discrimination," Economics Series Working Papers 205, University of Oxford, Department of Economics.
  17. Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, 06.
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