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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. Alessandro Acquisti & Curtis Taylor & Liad Wagman, 2016. "The Economics of Privacy," Journal of Economic Literature, American Economic Association, pages 442-492.
    2. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    3. Prüfer, Jens & Schottmuller, C., 2017. "Competing with Big Data," Discussion Paper 2017-006, Tilburg University, Tilburg Law and Economic Center.
    4. Weber, Michael, 2017. "Public employment services under decentralization: Evidence from a natural experiment," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168277, Verein für Socialpolitik / German Economic Association.
    5. Spiegel, Yossi, 2013. "Commercial software, adware, and consumer privacy," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 702-713.

    More about this item

    Keywords

    Online advertising; privacy; information disclosure; auctions;

    JEL classification:

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

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