Consumer privacy and targeted pricing with stochastic valuations

Abstract

I study the market for consumer information. Firms cannot commit to privacy, so buyers anticipate disclosure of purchase history for targeted pricing. In the literature, strategic rejections of informative o ers make purchase data worthless, which is paradoxical given the large investments in data analytics. I show that buyers' uncertainty regarding future preferences allows full separation of types, leading to valuable purchase data. Buyers of any given type are assumed to share similar expectations about the evolution of future valuations. Preference uncertainty generates consumer-to-consumer externalities, which is why strategic consumers are sometimes better o when they remain unaware of targeted pricing. When preferences are transitory, rms have an incentive to raise consumer awareness about targeted pricing.