By Friederike Heiny, Tianchi Li, and Michel Tolksdorf
In an age of Big Data and large-scale information acquisition, the EU General Data Protection Regulation (GDPR) reinforced protection of private information and the data sovereignty of European citizens. While this is primarily supposed to protect personal information, it may also impact the functioning and dynamics of markets. In particular, in web-based markets, sellers may access a wide range of customer information prior to purchases through the use of cookies. Due to the GDPR, consumers can now influence how and when their data is collected.
In an early attempt to grasp such economic implications of this policy, BCCP Doctoral Students Friederike Heiny, Tianchi Li, and Michel Tolksdorf construct a theoretical model that is subsequently tested in an economic experiment. The experiment studies the impact of deliberate privacy decisions in a competitive market of firms that gather and use shopping data information in two subsequent periods. They compare two benchmark scenarios: When buyers disclose their first period purchasing information in the second period, either all sellers have access to information for all customers or sellers only have access to information for their own past customers.
Rationally, buyers should fully disclose their information given every seller can access it, since this increases competitive forces and drives prices downwards. If sellers cannot access the information of their competitors, rational buyers will refrain from disclosing any information, even though they would collectively benefit from disclosing all information.
The authors bring their theory to a laboratory environment and observe student’s privacy choices in an abstract market setting that corresponds to their theoretical framework by considering a case with information sharing between sellers and a case without. They link market decisions to an instrumental measure of privacy concern that finds wide application in marketing research. This instrument is a survey, covering control, collection, and awareness issues concerning the inquiry of private information.
The willingness to share shopping data is lower for those participants who are generally more concerned about their private information when the data is not shared between sellers. This corresponds to their theoretical finding of tensions between individual and collective benefits when sellers hold shopping data exclusively. This effect does not occur when information is non-exclusive.
The full paper is available as SSRN Working Paper (Open access pdf download).