Consumers' privacy, selling of information, and security in digital markets

Resumen

The digital era is characterized by the large production of data (some of them of private nature) on a large scale. The vulnerability and exposure is occurring at an unprecedented rate, producing great economic incentives for the owners of these data. However, the providers of such data, who are often consumers of free content on digital platforms, are starting to develop privacy concerns and thus, lead to the subsequent reduction of confidence in digital markets. The main objective of this thesis is to analyze privacy from an informational perspective and source of inefficiencies in the market. Furthermore, the thesis offers an analysis of optimal decisions of economic agents considering the current prevailing need for a demand for privacy. After the introduction of the topic, Chapter 2 analyzes the role of privacy in channel-based price discrimination and price dispersion. Chapter 3 investigates the monopolist's decision to invest in security in digital markets in order to influence consumers increasing their confidence in matters of security and privacy. Chapter 4 studies the strategic behavior of consumers in a market composed by an upstream market and a downstream market, where information about them can be sold to another firm selling another good they might also buy. Furthermore, we examine the scenario when consumers are offered an opt-out option to avoid having their information sold. As general conclusions, we find out that the monopolist gets higher expected profits under channel-based price discrimination. Moreover, it does exist price dispersion over channels, much in line with the literature. Indeed, price dispersion depends on the average population privacy concerns in the market. We get that the monopolist finds it profitable to invest in security. However, such investments in security may result in a transfer of the cost directly to consumers through the price, and it might result in abuse of position. Finally, selling consumer information renders higher consumer surplus than no letting the sale of information in the market. However, changing the rules to permit free opt-out never improves aggregate consumer surplus.