Abstract
With the rapid development of information technology, digital platforms can collect, utilize, and share large amounts of specific information of consumers. However, these behaviors may endanger information security, thus causing privacy concerns among consumers. Considering the information sharing among firms, this paper constructs a two-period duopoly price competition Hotelling model, and gives insight into the impact of three different levels of privacy regulations on industry profit, consumer surplus, and social welfare. The results show that strong privacy protection does not necessarily make consumers better off, and weak privacy protection does not necessarily hurt consumers. Information sharing among firms will lead to strong competitive effects, which will prompt firms to lower the price for new customers, thus damaging the profits of firms, and making consumers’ surplus higher. The level of social welfare under different privacy regulations depends on consumers’ product-privacy preference, and the cost of information coordination among firms. With the cost of information coordination among firms increasing, it is only in areas where consumers have greater privacy preferences that social welfare may be optimal under the weak regulation.
Highlights
In the era of big data, the progress of information technology enables firms to collect consumer information with unprecedented speed and capacity, and identify consumers in more and more sophisticated ways [1]
Corollary 1 shows that, when the cost of information coordination between firms is small, social welfare is the highest under the W regulation; when the cost of information coordination is at a medium level, social welfare under the S regulation is the highest; when the cost of information coordination is high, the social welfare is the highest under the S regulation, while the lowest under the W regulation
The maininsight from our analyses is that mandatory privacy protection does not The maininsight from our analyses is that mandatory privacy protection does not necessarily lead to a higher social surplus, and the weak privacy regulation may put connecessarily lead to a higher social surplus, and the weak privacy regulation may put sumers in a better position, which depends on consumers’ product-privacy preferences and consumers in a better position, which depends on consumers’ product-privacy preferences and the cost of information coordination between firms
Summary
In the era of big data, the progress of information technology enables firms to collect consumer information with unprecedented speed and capacity, and identify consumers in more and more sophisticated ways [1]. Using consumers’ past purchase history to differentiate new and old customers and make price-discrimination is called behavior-based price discrimination (BBPD) This pricing model relies on the collection of consumer information by firms. These retailers promise to use CurrentC as their exclusive payment system, strictly control customer data, and cooperate effectively [6] These examples prove that there are a large number of information sharing practices among firms in reality, which shows that information sharing is helpful for firms to understand consumers, making more accurate price discrimination. We study the influence of three different levels of privacy regulation concerning information sharing among firms on each market party. This paper attempts to answer the following questions: (1) considering consumers’ privacy concerns, how do firms charge new and old customers under different levels of privacy regulation?
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