Thanks to significant advances in information technology, firms are increasingly able to collect and use a huge amount of personal data to segment markets in view of setting targeted prices and product offerings. The widespread availability of personal data has raised important privacy concerns, and the need for protecting consumers has prominently emerged in the public debate. In the EU, the awareness of privacy risks has led to the introduction of the General Data Protection Regulation (GDPR), which allows data subjects to manage personal data. Indeed, the collection and use of such data are allowed only after explicit consent of data subjects (opt-in regime).
In this context, it is of fundamental importance to assess the economic consequences of protecting personal information and analyse the effects of consumers¿ decisions regarding the trade-off associated with the privacy and the sharing of personal data.
The proposed research aims at investigating the effects of the new privacy regulation on firms¿ incentives to invest in R&D, innovation outcomes and consumers¿ welfare. Indeed, the opt-in regime makes it more difficult for firms to access consumers¿ data and infer their valuations for the products, thereby limiting the scope for price discrimination. As long as this reduces profits, it may also challenge the incentives to invest in product quality. Moreover, the provision of information may be insufficient when consumers¿ data at the aggregate level constitutes a fundamental input for the development of innovative products.
This study aims to shed light on the following issues: Does privacy regulation reducing the room for price discrimination come at the expense of product quality? Does enhanced privacy protection improve consumer surplus? Ultimately, should consumers be provided with more or less control over personal data?
Particular attention is devoted to the effects of regulation on heterogeneous consumers with different attitude towards privacy.
The widespread availability of personal data has raised important privacy concerns, especially following the biggest recent data breach scandals, and the need for protecting consumers has prominently emerged in the public debate. In Europe, this has yielded a radical change in perspective in privacy policy, which is pointed out in the new EU regulation on data protection and privacy, the General Data Protection Regulation (GDPR). The new EU privacy regulation aims at protecting consumers by introducing, among other measures, the requirement of the explicit consent for the provision of personal data. This measure limits the firms' ability to extract consumers' information and increase consumers' awareness about the value of personal data. Nevertheless, from an economic perspective, limiting the availability of information could lead to inefficient outcomes. In this context, it is of fundamental importance to assess the economic consequences of protecting personal information and analyse the effects of consumers' decisions regarding the trade-off associated with the privacy and the sharing of personal data. The economic consequences of giving consumers control over personal data are still scarcely analysed. Most of the economic literature on the effects of consumers privacy on social welfare focuses on the comparison of pricing strategies under different regimes (full information or no information). In this case privacy is interpreted as the opposite of sharing. The proposed research aims at investigating the effects of the opt-in privacy regulation on firms' incentives to invest in R&D, innovation outcomes and consumers' welfare. The novelty of this approach consists of modelling the information structure at the heart of the EU GDPR, i.e. assuming that consumers must give their explicit consent to information sharing for firms to collect and use personal data for targeting purposes. In particular, this research aims to shed light on the trade-offs underlining consumers' decisions about the provision of personal data. These choices deeply affect firms' strategies in terms of pricing and R&D investment, with non-negligible effects on the whole society. A distinguishing feature of this study consists of an extensive analysis of the effect of firms' investment decision on consumer welfare. In particular, the research will allow to evaluate the distinct effects of regulation on heterogeneous consumers (charatcerized by different attitudes towards provacy) and the presence of externalities generated by consumers sharing data. The analysis will be conducted using theoretical models that combine price discrimination, endogenous consumers' information disclosure and quality investment, a new approach in the economic literature addressing privacy issues.
This study aims to shed light on the following issues: Does privacy regulation reducing the room for price discrimination come at the expense of product quality? Does enhanced privacy protection improve consumer surplus? Ultimately, should consumers be provided with more or less control over personal data?
The consequences of the policy attitude towards privacy-related issues condition several fields of the social and economic environment. Trying to describe some mechanisms underlying the economic incentives related to the use of personal date contributes to build a more complete picture of the phenomenon. This allows to identify possible trade-offs and address the conflicts with complementary political measures, aiming at the development of efficient systems to manage the increasing spread and importance of personal data.
This research contributes to the worldwide debate on the need for protecting consumer privacy. The results are expected to be useful to derive policy implications concerning the possible side effects of the newly introduced privacy regulation. They may also contribute to suggest additional measures aimed to increase economic efficiency in a framework characterized by consumers having control over personal data.