Document Type

Discussion Paper

Publication Date

4-16-2024

CFDP Number

2388

CFDP Pages

50

Journal of Economic Literature (JEL) Code(s)

D43, D82, L13

Abstract

This paper studies consumers’ privacy choices when firms can use their data to make personalized offers. We first introduce a general framework of personalization and privacy choice, and then apply it to personalized recommendations, personalized prices, and personalized product design. We argue that due to firms’ reaction in the product market, consumers who share their data often impose a negative externality on other consumers. Due to this privacy-choice externality, too many consumers share their data relative to the consumer optimum; moreover, more competition, or improvements in data security, can lower consumer surplus by encouraging more data sharing.

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