Pricing and personal data collection strategies of online platforms in the face of privacy concerns
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Pricing and personal data collection strategies of online platforms in the face of privacy concerns Yongrui Duan1 · Yao Ge1 · Yixuan Feng1 Accepted: 28 August 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract We consider a platform providing free content for users and earning profit from the sale of advertising. The platform can collect and analyze personal data to customize advertisements for individual users. Customization may alleviate users’ aversion to advertising, but it may also raise privacy concerns. Considering the platform as a two-sided market with asymmetric externalities, we investigate the effects of privacy concerns on the platform’s optimal advertising pricing and data collection strategies. We find that it is always beneficial for the platform to collect and analyze personal data. When users attach less concerns on privacy, the price increases with the efficiency of efforts and decreases with the initial nuisance cost of advertisements to users. However, if users attach more concerns on privacy, the price decreases with the efficiency of efforts and increases with the initial nuisance cost of advertisements to users. Keywords Personal data · Pricing · Privacy concerns · Two-sided market
1 Introduction During the past decade, the rapid growth of mobile communication technology has dramatically changed our lives. Able to access the Internet anywhere and at any time, we spend more and more time online. Anyone who views a video, shops at an electronic mall, or clicks a link leaves personal information online, contributing to a vast, constantly growing reservoir of data that can be mined and analyzed. With the * Yixuan Feng [email protected] Yongrui Duan [email protected] Yao Ge [email protected] 1
School of Economics and Management, Tongji University, Shanghai 200092, People’s Republic of China
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development of data analytics, personal data from online users is playing a transformative role [1]. Because personal data can help firms improve the quality of their decisions [2], more and more firms attach importance to, and invest in, data collection and analysis. This has proved to be of great economic value [3]. There are many ways to realize the value of data, including selling it to a third party. Online sellers can also use personal data to practice discriminatory pricing or to provide customized products to selected users [4]. In this paper, we focus on another way to realize the economic value of personal data, namely by exposing users to targeted digital advertisements which are more likely to match their interests as determined by analysis of their data. Because online platforms can make use of users’ data to profile them more precisely than would otherwise be possible, targeted advertising on these platforms has a significant effect on users’ propensity to make a purchase [5]. For users, however, the collection of personal data is not always beneficial. On the one hand, the platform’s use of their data facil
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