An Economic Analysis of User-Privacy Options in Ad-Supported Services

  • Joan Feigenbaum
  • Michael Mitzenmacher
  • Georgios Zervas
Conference paper

DOI: 10.1007/978-3-642-35311-6_3

Part of the Lecture Notes in Computer Science book series (LNCS, volume 7695)
Cite this paper as:
Feigenbaum J., Mitzenmacher M., Zervas G. (2012) An Economic Analysis of User-Privacy Options in Ad-Supported Services. In: Goldberg P.W. (eds) Internet and Network Economics. WINE 2012. Lecture Notes in Computer Science, vol 7695. Springer, Berlin, Heidelberg

Abstract

We analyze the value to e-commerce website operators of offering privacy options to users, e.g., of allowing users to opt out of ad targeting. In particular, we assume that site operators have some control over the cost that a privacy option imposes on users and ask when it is to their advantage to make such costs low. We consider both the case of a single site and the case of multiple sites that compete both for users who value privacy highly and for users who value it less. One of our main results in the case of a single site is that, under normally distributed utilities, if a privacy-sensitive user is worth at least \(\sqrt{2} - 1\) times as much to advertisers as a privacy-insensitive user, the site operator should strive to make the cost of a privacy option as low as possible. In the case of multiple sites, we show how a Prisoner’s-Dilemma situation can arise: In the equilibrium in which both sites are obliged to offer a privacy option at minimal cost, both sites obtain lower revenue than they would if they colluded and neither offered a privacy option.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • Joan Feigenbaum
    • 1
  • Michael Mitzenmacher
    • 2
  • Georgios Zervas
    • 1
  1. 1.Computer Science DepartmentYale UniversityUSA
  2. 2.School of Engineering & Applied SciencesHarvard UniversityUSA

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