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Online privacy and market structure: Theory and evidence

Author

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  • Sabatino, Lorien
  • Sapi, Geza

Abstract

This paper investigates how privacy regulation affects the structure of online markets. We provide a simple theoretical model capturing the basic trade-off between the degree of privacy intrusion and the informativeness of advertising. We derive empirically testable hypotheses regarding a possibly asymmetric effect of privacy regulation on large and small firms using a diff-diff-diff model with heterogeneous treatment timing. Our theoretical model predicts that privacy regulation may affect predominantly large firms, even if - as our data confirms - these large firms tend to offer more privacy. Our empirical results show that, if any, only large firms were negatively affected, suggesting that privacy regulation might boost competition by leveling out the playing field for small firms.

Suggested Citation

  • Sabatino, Lorien & Sapi, Geza, 2019. "Online privacy and market structure: Theory and evidence," DICE Discussion Papers 308, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:308
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    References listed on IDEAS

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    1. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
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    5. Oz Shy & Rune Stenbacka, 2016. "Customer Privacy and Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(3), pages 539-562, September.
    6. Orley Ashenfelter & David Card, 1984. "Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs," Working Papers 554, Princeton University, Department of Economics, Industrial Relations Section..
    7. Justin Wolfers, 2006. "Did Unilateral Divorce Laws Raise Divorce Rates? A Reconciliation and New Results," American Economic Review, American Economic Association, vol. 96(5), pages 1802-1820, December.
    8. Avi Goldfarb & Catherine E. Tucker, 2011. "Privacy Regulation and Online Advertising," Management Science, INFORMS, vol. 57(1), pages 57-71, January.
    9. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
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    12. repec:fth:prinin:300 is not listed on IDEAS
    13. James Campbell & Avi Goldfarb & Catherine Tucker, 2015. "Privacy Regulation and Market Structure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(1), pages 47-73, March.
    14. repec:fth:prinin:174 is not listed on IDEAS
    15. Tucker, Catherine E., 2012. "The economics of advertising and privacy," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 326-329.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Privacy; Competition; Regulation; ePrivacy Directive;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • M38 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Government Policy and Regulation

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