Journal of the Operations Research Society of China >

2024 , Vol. 12 >Issue 2: 363 - 386

DOI: https://doi.org/10.1007/s40305-022-00396-7

The Role of Consumer Privacy Concerns in Shaping Platform Strategy for Online Markets

Expand
  • School Economics and Management, Tongji University, Shanghai 200092, China

Received date: 2021-01-13

  Revised date: 2021-11-15

  Online published: 2024-06-12

Supported by

This work was supported by the National Natural Science Foundation of China(Nos. 71771179, 72171176 and 72021002).

Fold

Abstract

We investigate the effects of consumer privacy concerns on the pricing and personal data collection strategy of an online platform. The online platform derives revenues from disclosing consumer information to firms. Firms compete for the information in order to enable them to price discriminate and thus derive revenues from consumer purchases. A novel aspect of our research is that we allow the online platform to sell only a subset of consumer data. We develop analytical models where consumers can/cannot protect their privacy. Our analysis yields three main conclusions. First, in the monopoly case, we find that when the consumer privacy disclosure aversion cost is relatively low, it is optimal for the platform to sell all consumer information to the firm. Second, in the duopoly case, we illustrate that when the consumer privacy disclosure aversion cost is relatively low, the platform will sell all consumer information to only one firm; when the cost is moderate, the platform will choose to sell the information of only some consumers and to only one firm; when the cost is relatively high, the platform will select only some of the consumers and sell their information to both firms. Third, it will be better for the platform to provide the information protection service for free when the privacy cost is low.

Key words： Price discrimination; User privacy; Consumer information; Two-sided market; Privacy disclosure aversion cost

Cite this article

Jin-Kun Yang, Yong-Rui Duan, Jia-Zhen Huo . The Role of Consumer Privacy Concerns in Shaping Platform Strategy for Online Markets[J]. Journal of the Operations Research Society of China, 2024 , 12(2) : 363 -386 . DOI: 10.1007/s40305-022-00396-7

References

[1] Acquisti, A., Taylor, C., Wagman, L.:The economics of privacy. J. Econ. Literat. 52(2), 442-492(2016)
[2] Casadesus-Masanell, R., Hervas-Drane, A.:Competing with privacy. Manage. Sci. 61(1), 229-246(2015)
[3] Jing, B.:Behavior-based pricing, production efficiency, and quality differentiation. Manage. Sci. 63(7), 2365-3237(2017)
[4] Esteves, R.B., Cerqueira, S.:Behavior-based pricing under imperfectly informed consumers. Inf. Econ. Policy 40, 60-70(2017)
[5] Choe, C., King, S., Matsushima, N.:Pricing with cookies:Behavior-based price discrimination and spatial competition. Manage. Sci. 64(12), 5669-5687(2018)
[6] Li, G., Lim, M.K., Wang, Z.:Stakeholders, green manufacturing, and practice performance:empirical evidence from Chinese fashion businesses. Ann. Oper. Res. 290, 961-982(2020)
[7] Goldfarb, A., Tucker, C.:Shifts in privacy concerns. Am. Econ. Rev. 102(3), 349-353(2012)
[8] Kox, H., Straathof, B., Zwart, G.:Targeted advertising, platform competition, and privacy. J. Econ. Manage. Strat. 26(3), 557-570(2017)
[9] Hann, H., Hui, K.L., Lee, S.Y.T., Png, I.P.L.:Consumer privacy and marketing avoidance:a static model. Manage. Sci. 54(6), 1094-1103(2008)
[10] Harrell, E., Langton, L.:Victims of Identity Theft, 2012. US Department of Justice Bureau of Justice Statistics, Washington DC (2014)
[11] Xu, H., Teo, H.H., Tan, B.C., Agarwal, R.:Effects of individual self-protection, industry selfregulation, and government regulation on privacy concerns:a study of location-based services. Inf. Syst. Res. 23(4), 1342-1363(2012)
[12] Valletti, T., Wu, J.:Consumer profiling with data requirements:structure and policy implications. Prod. Oper. Manag. 29(2), 309-329(2019)
[13] Tsai, J.Y., Egelman, S., Cranor, L., Acquisti, A.:The effect of online privacy information on purchasing behavior:an experimental study. Infor. Sys. Res. 22(2), 254-268(2011)
[14] Preibusch, S., Kubler, D., Beresford, A.:Price versus privacy:an experiment into the competitive advantage of collecting less personal information. Electron. Commer. Res. 13(4), 423-455(2013)
[15] Narasimhan, C.:A price discrimination theory of coupons. Mark. Sci. 3(2), 128-147(1984)
[16] Anderson, E.T., Dana, J.D.:When is price discrimination profitable?Manage. Sci. 55(6), 980-989(2009)
[17] Liu, Q.H., Shuai, J.:Multi-dimensional price discrimination. Int. J. Ind. Organ. 31(5), 417-428(2013)
[18] Bergemann, D., Brooks, B., Morris, S.:The limits of price discrimination. Am. Econ. Rev. 105(3), 921-957(2015)
[19] Herbon, A.:Potential additional profits of selling a perishable product due to implementing price discrimination versus implementation costs. Int. Trans. Operat. Res. 26(4), 1402-1421(2019)
[20] Chen, Y.:Dynamic price discrimination with asymmetric firms. J. Ind. Econom. 56(4), 729-751(2008)
[21] Carroni, E.:Competitive customer poaching with asymmetric firms. Int. J. Ind. Organ. 48(6), 173-206(2016)
[22] Carroni, E.:Behaviour-based price discrimination with cross-group externalities. J. Econ. 125(2), 137-157(2018)
[23] Montes, R., Sand-Zantman, W., Valletti, T.:The value of personal information in online markets with endogenous privacy. Manage. Sci. 65(3), 1342-1362(2019)
[24] Conitzer, V., Taylor, C.R., Wagman, L.:Hide and seek:Costly consumer privacy in a market with repeat purchases. Mark. Sci. 31(2), 277-292(2012)
[25] Taylor, C., Wagman, L.:Consumer privacy in oligopolistic markets:Winners, losers, and welfare. Int. J. Ind. Organ. 34, 80-84(2014)
[26] Goldfarb, A., Tucker, C.:Online display advertising:targeting and obtrusiveness. Mark. Sci. 30(3), 389-404(2011)
[27] Tucker, C.E.:The economics of advertising and privacy. Int. J. Ind. Organ. 30(3), 326-329(2012)
[28] Stone, B.:Ads Posted on Facebook Strike Some as Off-Key. New York Times. March 4, B1(2010)
[29] Rao, J.M., Reiley, D.H.:The economics of spam. J. Econ Perspect. 26(3), 87-110(2012)
[30] Caillaud, B., Jullien, B.:Chicken and egg:Competition among intermediation service providers. Rand J. Econ. 34(2), 309-328(2003)
[31] Rochet, J.C., Tirole, J.:Platform competition in two-sidedmarkets. Eur Econ Associat. 1(4), 990-1029(2003)
[32] Parker, G.G., Van Alstyne, M.W.:Two-sided network effects:A theory of information product design. Manage. Sci. 51(10), 1494-1504(2005)
[33] Armstrong, M.:Competition in two-sided markets. J. Econ. 37(3), 668-691(2006)
[34] Hagiu, A., Spulber, D.:First-party content and coordination in two-sided markets. Manage. Sci. 59(4), 933-949(2013)
[35] Anderson, E.G., Parker, G.G., Tan, B.:Platform performance investment in the presence of network externalities. Inf. Syst. Res. 25(1), 152-172(2014)
[36] Brahem, A., Jebsi, K.:Access pricing to an operating system platform when piracy matters. J. Syst. Sci. Syst. Eng. 29(2), 184-202(2020)
[37] Dimakopoulos, P.D., Sudaric, S.:Privacy and platform competition. Int. J. Ind. Organ. 61, 686-713(2018)
[38] Gal-Or, E., Gal-Or, R., Penmetsa, N.:The role of user privacy concerns in shaping competition among platforms. Inf. Syst. Res. 29(3), 698-722(2018)
[39] Jehiel, P., Moldovanu, B.:Auctions with downstream interaction among buyers. Rand J Econ. 31(4), 768-791(2000)
[40] Savage, S., Donald M.W.:The Value of online privacy.(2013). https://doi.org/10.2139/ssrn.2341311
[41] Anand, B.N., Shachar, R.:Targeted advertising as a signal. Quant. Mark. Econ. 7(3), 237-266(2009)
Options
Outlines

/

〈 〉

Copyright © Operations Research Society of China, The Periodicals Agency of Shanghai University , and Springer-Verlag Berlin Heidelberg 2016