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Revealing transactions data to third parties: Implications of privacy regimes for welfare in online markets

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  • Michael R. Baye
  • David E. M. Sappington

Abstract

We examine the effects of privacy policies regarding transactions (e.g., price/quantity) data on online shopping platforms. Disclosure of transactions data induces consumer signaling behavior that affects merchant pricing decisions and the welfare of platform participants. A profit‐maximizing platform prefers the disclosure policy that maximizes total welfare. Although this policy benefits sophisticated consumers, it harms unsophisticated (myopic) consumers. Consequently, the welfare effects of alternative privacy policies, data breaches, deceptive privacy policies, and opt‐in/opt‐out requirements can differ sharply, depending on the level of consumer sophistication and on other factors such as the prevailing status quo.

Suggested Citation

  • Michael R. Baye & David E. M. Sappington, 2020. "Revealing transactions data to third parties: Implications of privacy regimes for welfare in online markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(2), pages 260-275, April.
    • Handle: RePEc:bla:jemstr:v:29:y:2020:i:2:p:260-275
    DOI: 10.1111/jems.12337
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    References listed on IDEAS

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    Cited by:

    1. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    2. Zibin Xu & Anthony Dukes, 2022. "Personalization from Customer Data Aggregation Using List Price," Management Science, INFORMS, vol. 68(2), pages 960-980, February.
    3. Shuaicheng Liu, 2024. "Privacy regulation in asymmetric environments," Journal of Regulatory Economics, Springer, vol. 66(2), pages 157-173, December.
    4. Abrardi, Laura & Cambini, Carlo, 2022. "Carpe Data: Protecting online privacy with naive users," Information Economics and Policy, Elsevier, vol. 60(C).
    5. Bonatti, Alessandro & Argenziano, Rossella, 2020. "Information Revelation and Privacy Protection," CEPR Discussion Papers 15203, C.E.P.R. Discussion Papers.

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