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. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2024.06653 .

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. This paper was accepted by Juanjuan Zhang, marketing.

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 . This paper was accepted by Juanjuan Zhang, marketing.