Paying Consumers for Their Data: An Economic Analysis of Data Acquisition and Digital Privacy

Abstract

Digital rms o¤er digital products to consumers and collect consumer data as a by- product of their usage. This data acquisition generates both data-monetization revenue and data-driven consumer benets, while imposing privacy costs on consumers. The paper ex- plores compensation schemes for consumer data, focusing on the interdependence between data collection and digital product provision, and examining the role of cross-subsidization in compensation mechanisms. We analyze the optimal compensation scheme for a monop- olistic digital rm, examine the impact of data acquisition on competition, and investigate personalized pricing in the context of consumer privacy choices. Our ndings o¤er valuable policy implications for digital privacy regulations and competition policies related to data collection.

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