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Targeted advertising, platform competition, and privacy

Author

Listed:
  • Henk Kox
  • Bas Straathof
  • Gijsbert Zwart
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.

Suggested Citation

  • Henk Kox & Bas Straathof & Gijsbert Zwart, 2017. "Targeted advertising, platform competition, and privacy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 557-570, September.
    • Handle: RePEc:bla:jemstr:v:26:y:2017:i:3:p:557-570
    DOI: 10.1111/jems.12200
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    References listed on IDEAS

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    Cited by:

    1. Chen, Chen & Duan, Yongrui, 2022. "Impact of personalization and privacy concerns on information disclosure and pricing," Journal of Retailing and Consumer Services, Elsevier, vol. 69(C).
    2. Natvik, Gisle J. & Tangerås, Thomas, 2023. "Paying with Personal Data," Working Paper Series 1481, Research Institute of Industrial Economics.
    3. Evensen, Charlotte Bjørnhaug & Haugen, Atle, 2021. "The impact of targeting technologies and consumer multi-homing on digital platform competition," Discussion Paper Series in Economics 13/2021, Norwegian School of Economics, Department of Economics.
    4. Yongrui Duan & Yao Ge & Yixuan Feng, 2022. "Pricing and personal data collection strategies of online platforms in the face of privacy concerns," Electronic Commerce Research, Springer, vol. 22(2), pages 539-559, June.
    5. Sabatino, Lorien & Sapi, Geza, 2022. "Online privacy and market structure: Theory and evidence," Information Economics and Policy, Elsevier, vol. 60(C).
    6. Min Liu & Sajid Anwar, 2024. "Analyzing horizontal integration and market efficiency in platform enterprises: A case study of exchanges," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 1076-1089, July.
    7. Yue Shen & Weijun Zhong & Shue Mei, 2023. "Advertising strategies of competing firms considering consumer privacy concerns," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2424-2437, June.
    8. Duan, Yongrui & Liu, Peng & Feng, Yixuan, 2022. "Pricing strategies of two-sided platforms considering privacy concerns," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    9. Huayong Du & Ying Teng & Zhenzhong Ma & Xuguang Guo, 2022. "Value Creation in Platform Enterprises: A Fuzzy-Set Qualitative Comparative Analysis," Sustainability, MDPI, vol. 14(9), pages 1-21, April.
    10. Jiang, Baojun & Turut, Ozge, 2024. "Targeted reminder advertising: Retailers’ new weapon against cart abandonment," Journal of Business Research, Elsevier, vol. 180(C).

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • M38 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Government Policy and Regulation

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