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Price versus privacy: an experiment into the competitive advantage of collecting less personal information

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Abstract

In previous privacy studies, consumers have reported their unease with online retailers that collect a lot of personal data. Consumers claim they will switch to alternative providers or cancel transactions if data collection is deemed excessive. Therefore, privacy appears to be a competitive factor in electronic commerce.

This paper describes a study which quantifies the degree to which privacy is a competitive advantage for online retailers. In an experiment, we offered 225 participants the option to purchase one DVD from one of two online stores. Throughout the study, one online shop asked for more invasive personal data—as confirmed by an exit-questionnaire. In the test treatment, the privacy-invasive store sold DVDs for one Euro less than the other, and in the control treatment, both stores sold DVDs for the same price. Across both treatments, 74 participants made a purchase and had the DVD they bought delivered.

In our study we found that, when the price of DVDs was the same between both stores, the shop asking for less personal data did not amass the entire market. When consumers were offered a trade-off between price and privacy, the vast majority of customers chose to buy from the cheaper, more privacy-invasive, firm; this firm got both a larger market share and higher revenue. The cheaper shop generated strong dissatisfaction with their privacy practises; in contrast, consumers of the more expensive store displayed only weak dissatisfaction with price. We established the validity of our analysis by checking users made informed choices, and did not select one firm over the other due to hasty decision-making or ordering effects. We found no support for either a materialistic lifestyle nor the quest for immediate gratification as to why customers chose the cheaper but privacy-unfriendly store.

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Notes

  1. A short paper using a subset of the data presented in this paper has been published in Economics Letters [2]. However, this earlier note only considered the privacy paradox and anomalies in human choice.

  2. “Köln”, “Frankfurt”.

  3. “zufrieden”–“neutral”–“unzufrieden”.

  4. “keine Sorgen”–“einige Sorgen”–“große Sorgen”.

  5. “Um Trinkwasserknappheit auf der Südhalbkugel?”

  6. “Über die Ausweitung des Überwachungsstaats?”

  7. “Um das Ende der Meinungsfreiheit?”

  8. “Verschiedene private und öffentliche Organisationen bewahren persönliche Informationen von Personen auf. Interessiert es Sie oder interessiert es Sie nicht, ob Ihre persönlichen Daten von diesen Organisationen geschützt werden?”

  9. “interessiert mich sehr”–“interessiert mich einigermaßen”–“interessiert mich kaum”–“interessiert mich überhaupt nicht”.

  10. “Wenn Sie im Internet unterwegs sind, werden Sie immer wieder mal gebeten, verschiedene Daten anzugeben.”

  11. “ganz und gar bereit”–“eher bereit”–“eher nicht bereit”–“gar nicht bereit”.

  12. “Wie reagieren Sie, wenn Sie auf einer nicht-staatlichen Website Daten angeben müssen, aber dazu auf keinen Fall bereit sind?”

  13. “Ich gebe die Daten dann schließlich doch an.”

  14. “Ich breche die Transaktion ab.”

  15. “Ich breche die Transaktion ab und wechsele zu einem anderen Anbieter.”

  16. “Ich gebe falsche Daten an.”

  17. “ganz sicher” to “ausgeschlossen”.

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Correspondence to Sören Preibusch.

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The research presented in this paper was done while Sören Preibusch was at the Computer Laboratory.

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Preibusch, S., Kübler, D. & Beresford, A.R. Price versus privacy: an experiment into the competitive advantage of collecting less personal information. Electron Commer Res 13, 423–455 (2013). https://doi.org/10.1007/s10660-013-9130-3

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