Information scarcity in an information age

We are constantly reminded that we live in an ‘information age’—an era in which production, consumption, and everyday life are all dominated by the pervasive presence and flow of information made possible by the digitisation of society. Amongst the hype, one might be forgiven for believing that information is something of a panacea, to be embraced by all. However, closer inspection suggests that not all parties stand to benefit from universally improved access to information. Indeed, agents are often incentivised to explicitly engender information scarcity in order to increases their economic rent. Such behaviour may distort allocations and undermine the efficiency of market outcomes; if and when this will be the case is therefore an important issue for regulators and strategists. In this extended abstract I highlight some of the subtleties involved in considering such shrouding—both by consumers and by firms—and describe some recent results on a market solution to obfuscation in the case of advertising. ä Consumer privacy: An obvious objection to the ever-expanding frontier of transparency comes from consumer advocacy groups that seek to protect the autonomy and privacy of consumers on-line. Such demands are often made on the basis of security concerns, or predicated upon the notion that personal privacy has some intrinsic value. A complete analysis, however, musk ask whether there are economic grounds for consumers to protect their privacy or for firms to seek to undermine it—and what the effects of such actions are likely to be. Firms have a long history of achieving market segmentation through ‘versioning’. Microsoft, for example, arbitrarily downgrades Windows 7 into a ‘Home’ version in order to separate personal and professional users (and extract more rent from the latter). The need for such measures stems from the inability to a priori identify the two groups, but such barriers are being reduced by the growing ability of firms to track and identify individual consumers. Amazon, for instance, famously experimented with price discrimination based upon the presence of a cookie on users’ machines, but were forced to apologise after a huge consumer backlash. More generally, Acquisti and Varian (2005) show that the circumstances under which firms can profitably use persistent consumer relationships to price discriminate are limited to those in which consumers are not sufficiently sophisticated to understand that their current behaviour may have consequences for future pricing, or are unable to anonnymise themselves. It is hard to imagine such myopia persisting should price conditioning become widespread. Moreover, many consumers are aware of the threat to their privacy posed by cookies and other technologies, and are able to actively block such tracking attempts should they feel that it is in their interest to do so. The technology, though, is continuously evolving; a recent development is the advent of device fingerprinting, whereby uniquely identifying combinations of characteristics of a computer such as the installed fonts, browser version, and screen resolution are compiled into a database that is then used to build a complete profile of each user. Such tracking is difficult to block or annonymise against, and is also passive so that it is much less likely that users are aware that any monitoring is taking place. Exploitation of consumers then becomes more feasible. A somewhat counterintuitive point is that, like most forms of price discrimination, price conditioning has the potential to increase the spectrum of consumers to whom firms cater and thereby increase total social welfare. Consumer attempts to block tracking technologies may therefore be sub-optimal from a societal perspective. Another use to which consumer information is put is the targeting of advertisements. Targeted or behavioural advertising is a coveted prize for publishers (whom it permits to more effectively utilise ad inventory) and for advertisers (who make more efficient use of their ad budget). Targeted ads may also be of direct benefit to consumers by ensuring that pages are not cluttered with irrelevant ads. A more careful analysis, however, must also consider the indirect effects of targeting. One such effect is to increase the value of (marginal) ads to publishers and advertisers, which creates a strong incentive to increase the total volume of advertising. Authors including Johnson (2009) consider the consequences of this shift in incentives. The attractiveness of cheap, well targeted advertising causes consumers to be subjected to a kind information overload, whereby the volume of ads becomes so bothersome that