Voluntary Disclosure and Personalized Pricing

Abstract

Central to privacy concerns is that firms may use consumer data to price discriminate. A common policy response is that consumers should be given control over which firms access their data and how. Since firms learn about a consumer s preferences based on the data seen and the consumer s disclosure choices, the equilibrium implications of consumer control are unclear. We study whether such measures improve consumer welfare in monopolistic and competitive markets. We find that consumer control can improve consumer welfare relative to both perfect price discrimination and no personalized pricing. First, consumers can use disclosure to amplify competitive forces. Second, consumers can disclose information to induce even a monopolist to lower prices. Whether consumer control improves welfare depends on the disclosure technology and market competitiveness. Simple disclosure technologies suffice in competitive markets. When facing a monopolist, a consumer needs partial disclosure possibilities to obtain any welfare gains.