This study examines the impact of consumers’ personal data management on firm competition in the data collection and application markets, as well as on welfare outcomes. Consumers purchase products from differentiated firms in these two markets. Initially, in the data collection market, firms compete to collect consumer data to predict preferences in the data application market, enabling them to offer personalized prices to their targeted customers. Before firms set prices in the data application market, targeted consumers can erase their data at a fixed cost, thereby becoming untargeted. We show that personal data management leads to higher prices, lower firm profits, negative externalities among consumers, and reduced consumer surplus in the data application market. In the data collection market, personal data management intensifies competition and improves consumer surplus. Our analysis further explores extended scenarios of personal data management—including the rights to opt out of data collection, data portability, and data ownership—and reveals that firms’ two-market profits and total consumer surplus change nonmonotonically with consumers’ data rights. Specifically, granting consumers data rights beyond simple data erasure can reverse the effects of erasure alone, benefiting firms while harming consumers. Moreover, data management influences cross-market competition quite differently depending on which market consumers exercise their data rights. Finally, we discuss proactive strategies firms can employ to maintain profitability under personal data laws. This paper was accepted by Dmitri Kuksov, marketing. Funding: J. Cong acknowledges the financial support from National Natural Science Foundation of China (Projects 72473024, 72192845) and support from the Shenzhen Research Institute, City University of Hong Kong. The authors gratefully acknowledge the financial support from the Japan Society for the Promotion of Science (JSPS), KAKENHI [Grants JP19H01483, JP20H05631, JP21H00702, JP21K01452, JP21K18430, JP23K20593, and JP23K25515], Nomura Foundation, the International Joint Research Promotion Program at University of Osaka, and the program of the Joint Usage/Research Center for “Behavioral Economics” at ISER, University of Osaka.

We study the General Data Protection Regulation (GDPR)’s opt-in requirement in a model with a firm that provides a digital service and consumers who are heterogeneous in their valuations of the firm’s service and the privacy costs incurred when sharing personal data with the firm. We show that the GDPR boosts demand for the service by allowing consumers with high privacy costs to buy the service without sharing data. The increased demand leads to a higher price but a smaller quantity of shared data. If the firm’s revenue is largely usage based rather than data based, then both the firm’s profit and consumer surplus increase after the GDPR, implying that the GDPR can be welfare improving. But if the firm’s revenue is largely from data monetization, then the GDPR can reduce the firm’s profit and consumer surplus. This paper was accepted by D. J. Wu, information systems. Funding: The authors gratefully acknowledge financial support from the Australian Research Council [Grant DP210102015], the Japan Society for the Promotion of Science [KAKENHI Grants JP20H05631, JP21H00702, JP21K01452, JP21K18430, JP23H00818, JP23K20593, and JP23K25515], the Nomura Foundation, the International Joint Research Promotion Program at Osaka University, and the program of the Joint Usage/Research Center for “Behavioral Economics” at the ISER, Osaka University. Although N. Matsushima serves as a member of the Competition Policy Research Center at the Japan Fair Trade Commission (JFTC), the views expressed in this paper are solely ours and should not be attributed to the JFTC.

We study a model where each competing firm has a target segment where it has full consumer information and can exercise personalized pricing, and consumers may engage in identity management to bypass the firm’s attempt to price discriminate. In the absence of identity management, more consumer information intensifies competition because firms can effectively defend their turf through targeted personalized offers, thereby setting low public prices offered to nontargeted consumers. But the effect is mitigated when consumers are active in identity management because it raises the firm’s cost of serving nontargeted consumers. When firms have sufficiently large and nonoverlapping target segments, identity management can enable firms to extract full surplus from their targeted consumers through perfect price discrimination. Identity management can also induce firms not to serve consumers who are not targeted by either firm when the commonly nontargeted market segment is small. This results in a deadweight loss. Thus, identity management by consumers can benefit firms and lead to lower consumer surplus and lower social welfare. Our main insight continues to be valid when a fraction of consumers are active in identity management or when there is a cost of identity management. We also discuss the regulatory implications for the use of consumer information by firms as well as the implications for management.

We present a model of dynamic competition between two firms where firms gather customer information through first-period purchase. This creates asymmetric information in the second period whereby a firm knows more about its own past customers than its competitor does. We examine how the ability to offer personalized prices based on customer information affects prices and profit over the two periods. When product differentiation is exogenously fixed, asymmetric information leads to two asymmetric equilibria where one firm chooses more aggressive pricing to secure a larger first-period market share. When product differentiation is also chosen endogenously, there continue to exist two asymmetric equilibria where one firm chooses more aggressive positioning. The more aggressive firm, whether through pricing or positioning, can force the game to be played to its advantage. But both firms end up worse off compared to when they use simpler pricing strategies or commit to substantial product differentiation. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2873 .