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Optimal Nonlinear Pricing with Data-Sensitive Consumers†

Optimal Nonlinear Pricing with Data-Sensitive Consumers† AbstractWe study monopolistic screening when some consumers are data sensitive and incur a privacy cost if their purchase reveals information to the monopolist. The monopolist discriminates between data-sensitive and classical consumers using privacy mechanisms that consist of a direct mechanism and a privacy option. A privacy mechanism is optimal for large privacy costs and leaves classical consumers better off than data-sensitive consumers with the same valuation. When privacy preferences become public information, data-sensitive consumers and the monopolist gain, whereas classical consumers lose. Our results are relevant for policies targeting consumers’ data awareness, such as the European General Data Protection Regulation. (JEL D11, D42, D82, D83, L12) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal Microeconomics American Economic Association

Optimal Nonlinear Pricing with Data-Sensitive Consumers†

29 pages

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Publisher
American Economic Association
Copyright
Copyright © 2023 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20210190
Publisher site
See Article on Publisher Site

Abstract

AbstractWe study monopolistic screening when some consumers are data sensitive and incur a privacy cost if their purchase reveals information to the monopolist. The monopolist discriminates between data-sensitive and classical consumers using privacy mechanisms that consist of a direct mechanism and a privacy option. A privacy mechanism is optimal for large privacy costs and leaves classical consumers better off than data-sensitive consumers with the same valuation. When privacy preferences become public information, data-sensitive consumers and the monopolist gain, whereas classical consumers lose. Our results are relevant for policies targeting consumers’ data awareness, such as the European General Data Protection Regulation. (JEL D11, D42, D82, D83, L12)

Journal

American Economic Journal MicroeconomicsAmerican Economic Association

Published: May 1, 2023

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