Voluntary Disclosure and Personalized Pricing

TL;DR

This paper examines how consumer control over data disclosure impacts pricing strategies and welfare in markets, showing that it can enhance consumer welfare by enabling competitive pressure and price reductions, depending on market structure.

Contribution

It provides a theoretical analysis of consumer data control effects on pricing and welfare, highlighting conditions under which consumer control improves outcomes in different market settings.

Findings

Consumer control can improve welfare over perfect price discrimination.

Consumers can induce price reductions through strategic disclosure.

Welfare gains depend on disclosure technology and market competitiveness.

Abstract

Central to privacy concerns is that firms may use consumer data to price discriminate. A common policy response is that consumers should be given control over which firms access their data and how. Since firms learn about a consumer's preferences based on the data seen and the consumer's disclosure choices, the equilibrium implications of consumer control are unclear. We study whether such measures improve consumer welfare in monopolistic and competitive markets. We find that consumer control can improve consumer welfare relative to both perfect price discrimination and no personalized 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.