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Online Advertising and Privacy

Author

Listed:
  • Alexandre de Cornière
  • Romain De Nijs

Abstract

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.

Suggested Citation

  • Alexandre de Cornière & Romain De Nijs, 2013. "Online Advertising and Privacy," Economics Series Working Papers 650, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:650
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    File URL: http://www.economics.ox.ac.uk/materials/papers/12662/paper650.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Batikas, Michail & Claussen, Jörg & Peukert, Christian, 2017. "Follow The Money: Piracy and Online Advertising," 28th European Regional ITS Conference, Passau 2017 169448, International Telecommunications Society (ITS).
    2. Michail Batikas & Jörg Claussen & Christian Peukert, 2018. "Follow The Money: Online Piracy and Self-Regulation in the Advertising Industry," CESifo Working Paper Series 6852, CESifo Group Munich.
    3. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    4. Anna D'Annunzio & Antonio Russo, 2017. "Ad Networks, Consumer Tracking, and Privacy," CESifo Working Paper Series 6667, CESifo Group Munich.
    5. Philipp Dimakopoulos & Slobodan Sudaric, 2017. "Privacy and Platform Competition," Working Papers 2017003, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    6. Spiegel, Yossi, 2013. "Commercial software, adware, and consumer privacy," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 702-713.
    7. Alessandro Acquisti & Curtis Taylor & Liad Wagman, 2016. "The Economics of Privacy," Journal of Economic Literature, American Economic Association, vol. 54(2), pages 442-492, June.
    8. Prüfer, Jens & Schottmuller, C., 2017. "Competing with Big Data," Discussion Paper 2017-006, Tilburg University, Tilburg Law and Economic Center.
    9. E. Carroni & L. Ferrari & S. Righi, 2018. "The Price of Discovering Your Needs Online," Working Papers wp1116, Dipartimento Scienze Economiche, Universita' di Bologna.

    More about this item

    Keywords

    Online advertising; privacy; information disclosure; auctions;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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