City Research Online

Competing with Privacy

Casadesus-Masanell, R. and Hervas-Drane, A. (2015). Competing with Privacy. Management Science, 61(1), pp. 229-246. doi: 10.1287/mnsc.2014.2023

Abstract

We analyze the implications of consumer privacy for competition in the marketplace. Firms compete for consumer information and derive revenues both from consumer purchases as well as from disclosing consumer information in a secondary market. Consumers choose which firm to patronize and how much personal information to provide it with. We show that firms maximize profits by focusing on a single revenue source and competing at the extensive rather than the intensive margin, outperforming competitors by attracting a larger customer base. We also show that competition drives the provision of services with a low level of consumer information disclosure (high level of privacy), but higher competition intensity in the marketplace need not improve privacy when consumers exhibit low willingness to pay. Our findings are relevant to the business models of Internet firms and contribute to inform the regulatory debate on consumer privacy.

Publication Type: Article
Publisher Keywords: information acquisition; information disclosure; online privacy; privacy regulation
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments: Cass Business School > Management
URI: http://openaccess.city.ac.uk/id/eprint/6158
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