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A Data Trade-Off Derby: Consumers vs. Sellers - Spoiler Alert, It’s a Tie

As consumers, if we share some of our information online, we may get better recommendations, advertisements, or other related services. On the other hand, online marketplaces might pull a 180-degree turn on us, such as charging higher prices for products or services the platform knows I need. In a new paper, entitled "Online Privacy and Information Disclosure by Consumers,” published in American Economic Review and authored by a young researcher Shota Ichihashi, he tangles with this very issue and analyses the trade-offs of data in the marketplace by using a game-theoretical model.

The first result of the game is that the seller should commit to not use the consumer's information for pricing. By doing so, the seller is encouraging the consumer to share more details. Therefore, the seller can provide much better services. In practice, sellers should commit to upfront prices. The limited online presence of price discrimination is one such example of this.

The author finds somewhat surprisingly that if possible, consumers are better off when sellers don't use public information in pricing. Why might you ask? Well, because when the seller does use consumer personal information to set prices, the consumer can manipulate the information received by the seller by withholding critical types of data such as one's location. Therefore, the seller may give a lower price based on sketchy or lack of information revealed by consumers.

To better understand the model used and get the full results of this classic derby between sellers vs. consumers, read Shota Ichihashi paper for the latest game results.


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