Consumer Privacy and Marketing Avoidance: A Static Model

Abstract

We introduce the concept of marketing avoidance--consumer efforts to conceal themselves and to deflect marketing. The setting is one in which sellers market some item through solicitations to potential consumers, who differ in their benefit from the item and suffer harm from receiving solicitations. Concealment by one consumer induces sellers to shift solicitations to other consumers, whereas deflection does not. Solicitations cause two externalities: direct harm on consumers and the (indirect) cost of consumer concealment and deflection. We find that in markets where the marginal cost of solicitation is sufficiently low, efforts by low-benefit consumers to conceal themselves will increase the cost-effectiveness of solicitations and lead sellers to market more. However, concealment by high-benefit consumers leads sellers to market less. Furthermore, concealment by low-benefit consumers increases direct privacy harm, and consumer welfare is higher with deflection than concealment. Finally, it is optimal to impose a charge on solicitations.marketing avoidance, privacy, advertising, promotion, segmentation

The Economics of Privacy

“…Some studies expand the analysis of privacy to include the costs of intrusions into an individual's personal sphere, such as unsolicited mail or spamming, as in Hann et al (2008), and personal preferences over privacy, as in Tang, Hu, and Smith (2008). Here, the theoretical study of privacy connects with the marketing literature on couponing, market segmentation, and consumer addressability (Blattberg and Deighton 1991).…”

“…Their findings demonstrate that price discrimination can lead to intensified price competition, where firms may possess incentives to (1) decrease the level of accuracy of targeted promotions, (2) differentially invest in customer addressability, and (3) seek commitment mechanisms not to price discriminate. Hann et al (2008) study a competitive market with heterogeneous consumers, some who draw no benefit from unsolicited marketing and some who are interested in receiving information about new products. They show that attempts to use technologies that prevent unsolicited marketing on one side, and sellers' efforts to use direct marketing on the other, constitute strategic complements: the higher the attempts of consumers to protect themselves from unsolicited marketing, the higher the use of direct marketing by sellers.…”

Merger Profitability in Industries with Brand Portfolios and Loyal Customers

“…Similarly, these s (#K) other …rms with single brands j = 2 K choose their price p j independently as in the benchmark case. Consumers who were loyal to one of the brands in the benchmark case are assumed to remain loyal to their old brand 13 , and customers without any brand loyalty in the benchmark case remain without brand loyalty.…”

“…13 It is not necessarily trivial to acquire a brand and still preserve customer loyalty for this brand (see Jaju, Joiner and Reddy 2006). The theoretical considerations by Baye, Crocker and Ju (1996) and Lommerud and Sørgard (1997) also show that the independence of brands in the process of a merger should not be taken for granted, as they essentially depart from this assumption.…”

Pricing music using personal data: mutually advantageous first-degree price discrimination

“…Although generally reluctant to give up their privacy (because of concerns that the information could be used against them or create extra costs), consumers are usually ready to decrease their level of privacy as long as they are provided with sufficient incentives (Acquisti and Varian 2005;Hann et al 2008).…”