Privacy Rights in Online Interactions and Litigation Dynamics: a Social Custom View

We develop a social custom model where a population of consumers interact through a social media supplied by a single provider, who optimally selects the quantity of information she gathers from her users. In the economy, privacy rights in online-interactions are incomplete, and so are the notice-and-consent contracts regulating the terms and conditions of service. Hence, the lawfulness of data-gathering activities is unclear, so that users may decide to litigate for privacy violations. The provider’s policy has an ambiguous effect on the consumers’ willingness to litigate. On the one hand, it improves customer experience, thereby creating an “enthusiasm effect” which alters the customers’ perception of the provider’s policy. On the other hand, it modifies the belief distribution concerning privacy-related issue, thus increasing the number of subscribers who are willing to ask for compensation. In this framework, the litigation dynamics may lead to multiple equilibria depending on the initial distribution of types in the users’ population.