Data Linkages and Privacy Regulation

This paper studies the use of data from a consumer’s interaction with one firm by other firms (e.g., the use of a consumer’s transactions records at an online store for targeted advertising by another firm), which the paper calls data linkages. The paper shows that data linkages can benefit consumers when the firms involved are similar to each other. The paper additionally analyzes the effects of privacy regulations on consumer welfare via their influence on data linkages

Abstract and Citation

Rossella Argenziano and Alessandro Bonatti. 2021. Working Paper.

Abstract

We study data linkages among heterogeneous firms and examine how they shape the outcome of privacy regulation. A single consumer interacts sequentially with two firms: one firm collects data on consumer behavior; the other firm leverages the data to set a quality level and a price. A data linkage benefits the consumer in equilibrium when the recipient firm is sufficiently similar to the collecting firm. We then endogenize linkage formation under various forms of privacy regulation. We show that voluntary consent requirements are beneficial to consumers in equilibrium but that bans on discriminatory price and quality offers are harmful.

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