Who Benefits from Online Privacy?
28 Pages Posted: 6 Feb 2012
Date Written: August 15, 2009
Abstract
When a firm is able to recognize its previous customers, it may use information about their purchase histories to price discriminate. We analyze a model with a monopolist and a continuum of heterogeneous consumers, where consumers are able to maintain their anonymity and avoid being identified as past customers, possibly at an (exogenous) cost. When consumers can costlessly maintain their anonymity, they all individually choose to do so, which paradoxically results in the highest profit for the firm. Increasing the cost of anonymity can benefit consumers, but only up to a point; at that point, the effect is reversed.
Keywords: Privacy, anonymity, price discrimination, electronic commerce
JEL Classification: L1, D8
Suggested Citation: Suggested Citation
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