Targeted advertising, platform competition and privacy

Henk Kox, Bas Straathof, Gijsbert Zwart

Research output: Contribution to journalArticleAcademicpeer-review

5 Citations (Scopus)
312 Downloads (Pure)

Abstract

Targeted advertising can benefit consumers through lower prices for access to web sites. Yet, if consumers dislike that web sites collect their personal information, their welfare may go down. We study competition for consumers between web sites that can show targeted advertisements. We find that more targeting increases competition and reduces the web sites' profits, but yet in equilibrium web sites choose maximum targeting as they cannot credibly commit to low targeting. A privacy protection policy can be beneficial for both consumers and web sites. If consumers are heterogeneous in their concerns for privacy, a policy that allows choice between two levels of privacy will be better. Optimal privacy protection takes into account that the more intense competition on the high-targeting market segment also benefits consumers on the less competitive segment. Consumer surplus is maximized by allowing them a choice between a high-targeting regime and a low-targeting regime which affords more privacy
Original languageEnglish
Pages (from-to)557-570
JournalJournal of Economics & Management Strategy
Volume26
Issue number3
Early online date7-Mar-2017
DOIs
Publication statusPublished - 2017

Keywords

  • ECONOMICS
  • MARKETS

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