Information Collection and Personalized Service Strategy of Monopoly under Consumer Misrepresentation

Abstract

To decrease privacy risks, consumers may choose to misrepresent themselves when they are asked to offer personal information. Using a game theoretic model, this study examines the impact of consumer misrepresentation on both a monopolistic firm and consumers. The results show that consumer misrepresentation may benefit the firm, but hurt consumers under certain conditions. In addition, we find that when the unit cost of personalized service is low, consumer misrepresentation may encourage the firm to provide a higher personalized service level. Moreover, when consumers misrepresent themselves and the firm only covers part of the market, a greater unit value of consumer private information will reduce the firm’s profit, while a greater unit cost of personalized service will increase the firm’s profit. The analysis reported here provides important insights regarding the application of consumer information in online personalized marketing and consumer privacy protection.