Online Advertising, Data Sharing, and Consumer Control

Abstract

Invoking a property rights approach, we examine how competition between advertising exchanges influences the targeting options that these exchanges make available to advertisers. When advertisers have strong property rights over data regarding consumers’ active purchase interests, competition between ad exchanges leads to too little sharing of data. This may harm consumers, who receive too few pertinent ads, and advertisers themselves can also be harmed due to a situation resembling a prisoner’s dilemma. We find that reallocating property rights to consumers, that is, giving them the right to opt out of tracking may also benefit consumers who allow tracking by altering the incentives of ad exchanges to offer improved targeting options. In addition, we show that initiatives by Apple and Google to limit third-party tracking and to introduce alternative tracking systems such as Google’s Topics might benefit consumers by weakening the data property rights of advertisers. Because more data are shared by default under such systems, this can be true even if these systems are less accurate than third-party tracking systems. This paper was accepted by Joshua Gans, business strategy.