Voluntary Disclosure and Personalized Pricing

Abstract

Firms have ever increasing access to consumer data, which they use to personalize their advertising and to price discriminate. This raises privacy concerns. Policymakers have argued in response that consumers should be given control over their data, able to choose what to share and when. Since firms learn about a consumer’s preferences both from what they do and do not disclose, the equilibrium implications of consumer control are unclear. We study whether such measures improve consumer welfare in monopolistic and in competitive markets. We find that consumer control can improve consumer welfare relative to both perfect price discrimination and uniform pricing. First, consumers can use disclosure to amplify competitive forces. Second, consumers can disclose information to induce even a monopolist to lower prices. Whether consumer control improves welfare depends on the disclosure technology and market competitiveness. Simple disclosure technologies suffice in competitive markets. When facing a monopolist, a consumer needs partial disclosure possibilities to obtain any welfare gains.

Information Choice: Cost over Content

“…In turn, the buyer who controls the seller's information, can achieve the same payoff as in the classic information design problem under the ex ante choice assumption. 6 Corollary 1 The buyer can realize the same ex ante expected payoff as the one she could realize if she could commit to a choice from S ex ante.…”

Open banking: Credit market competition when borrowers own the data

“…12 Ichihashi (2020) shows that the seller has an incentive to commit to not price discriminate to encourage consumer information sharing, but this can harm consumers in equilibrium because the firm may set a higher uniform price anticipating better a match between consumers and products. Ali, Lewis, and Vasserman (2020) study a related problem but in a different setup with single-product firms and argue that sharing preference information with firms can benefit consumers by amplifying price competition. 13 Liu, Sockin, and Xiong (2020) emphasizes the difference between two consumer privacy regulations, namely GDPR in EU (opt-out as the default choice) and CCPA in California (opt-in as the default choice).…”

The Economics of Digital Privacy

“…Jones & Tonetti (2020) emphasize the value of consumer property rights over data. Ali et al (2023) highlight granting consumers granular control instead of an all-or-nothing form such as the opt-in option in GDPR. Consumers' selective disclosure of data can amplify competition or prompt a monopolist to lower price.…”

“…Privacy technology solutions may complement the regulatory process. All-or-nothing forms of consumer control-such as track/do-not-track options-need richer and more sophisticated technologies to benefit consumers (Ali et al 2023). A great deal of engineering effort has gone into enabling data-driven innovation while restricting the flow of personally identifiable data.…”