The Privacy Landscape: Product Differentiation on Data Collection

Abstract

Whilst the majority of online consumers do not seem to take the privacy characteristics of goods and services into account with their consumption choices, a sizeable proportion consider differences in data collection and processing amongst alternative suppliers when deciding where to buy. Meeting their heterogeneous privacy preferences would require varied privacy regimes between different suppliers. Based on an empirical evaluation of 140Web sites across five industries, we consider two questions: (1) can privacy-conscious consumers find a privacy-friendly seller/provider? (2) is this alternative associated with higher prices? We interpret the empirical evidence using the economic model of horizontal differentiation. As an overarching conclusion, differentiation on privacy is more prevalent in markets where consumption is priced—an observation that confirms the prediction from theory. Surprisingly, sellers that collect less data charge lower prices, with high significance. Implications for regulation and for further study are discussed.