Impact of privacy regulation involving information collection on the ride-hailing market

Abstract

Ride-hailing platforms can indirectly adjust privacy-sensitive customers’ demand via pricing and information collection strategies while encouraging drivers to provide services by offering an attractive wage rate. Since the privacy information collected by platforms brings some negative effects, governments enact privacy regulations to protect customer privacy. Inspired by this observation, our paper aims to investigate the impact of privacy regulations on different stakeholders in the ride-hailing market, including customers, drivers, platforms, and regulators. Specifically, we formulate two multi-stage Stackelberg models under the scenarios with/without privacy regulation, respectively, compare the equilibrium results under these two scenarios, and obtain several interesting findings. First, the partial-coverage pricing strategy is more likely to be adopted by platforms than the full-coverage pricing strategy as privacy regulations are enforced. Second, when customers are not too severely disturbed by advertising, the privacy regulation transfers information decision-making right from the ride-hailing platform to customers and utilizes customers’ self-interest to alleviate the negative impact of information collected by the platform; Otherwise, it seems somewhat “redundant”. Third, effective regulation improves information security at the expense of benefits of stakeholders (the customer, drivers, and platforms). Therefore, the decision-making about privacy regulation results from a trade-off between economic benefits and information security, suggesting that regulators should enforce privacy regulation only if the level of externalities is high enough. This meaningful criterion can provide theoretical support for the decision-making of regulators.