On the Viability of Privacy-Enhancing Technologies in a Self-Regulated Business-to-Consumer Market: Will Privacy Remain a Luxury Good?

The collection of personal data in business-to-consumer transactions and respecting the consumers’ privacy preferences are fundamentally competing goals. This paper studies the effects of emerging user-controlled privacy-enhancing technologies on supply-side decision making with respect to technology adoption and pricing strategies. In particular, identity management systems that allow buyers to interact pseudonymously with online stores thwart the sellers’ efforts to discriminate prices based on personal data. We present stylised microeconomic models (1) to compare self-regulated and government-enforced regimes towards the adoption of privacy-enhancing technologies, (2) to analyse the conditions under which it is profitable for sellers to support such technologies, and (3) to study implication on social welfare and consumer prices.