Consumer Control and Privacy Policies

Abstract

Firms use consumer data to price discriminate. In response, policymakers have pushed for consumers to have control over their data so that they choose what to share and with whom. We model consumer control and its effect on markets through the lens of voluntary disclosure: the consumer has characteristics that they can verifiably disclose to the market. The market in turn draws inferences in equilibrium. Using this framework, we identify when consumers benefit from price discrimination in monopolistic and competitive markets. We also show that this framework can resolve the privacy paradox and potentially offers new limits for price discrimination.