Data Tracking Under Competition

Abstract

When Consumers May Benefit from Firms Tracking and Exploiting Their Data In today’s economy, firms routinely collect, track, and leverage consumer data to make decisions. Although the effects of these practices on consumers are complex and context-dependent, one may expect that that consumers would be disadvantaged if their data are used for a purpose that does not create value for them, such as personalized pricing. In “Data Tracking Under Competition,” Bimpikis, Morgenstern, and Saban develop a game-theoretic model to explore how technologies that allow firms to use consumer data for price discrimination affect market outcomes. Perhaps counter to intuition, they find that data-tracking practices may actually increase consumer surplus, even if consumers do not develop privacy concerns associated with disclosing their data and act myopically. However, this only occurs when multiple firms compete for consumers’ purchases. The study highlights the crucial role of competition in determining the benefits that consumers may derive from the data they generate and underscores the importance of considering competition in debates about the economic consequences of data-tracking practices.