Opt In Versus Opt Out: A Free-Entry Analysis of Privacy Policies
نویسندگان
چکیده
A public debate exists whether the flow of consumer information should be restricted, and whether privacy laws — such as the Gramm-Leach-Bliley Act for financial institutions — should be amended. We offer a welfare comparison of the three main current policies towards consumer privacy — anonymity, opt in, and opt out — within a two-period address model. These privacy policies shape a firm’s ability to collect and use customer information, and affect its pricing strategy and entry decision differently. The free-entry analysis reveals that social welfare is non-monotonic in the degree of privacy protection. Opt out is the socially preferred privacy regime while opt in socially underperforms anonymity.
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