Privacy and Information Markets: An Experimental Study

In this paper we create an experimental ‘information market’ where consumers can trade in potentially useful personal information. We study how a market where trade in information takes place compares experimentally with a market where there is no trade in information. We test the impact of trading in information and the impact of stricter privacy laws on consumers and sellers, and also the impact from a social perspective. Total surplus was found to be significantly higher in a higher privacy regime than in a lower privacy regime. Although our theoretical predictions showed that sellers would be better off in a higher privacy regime, the results from the experiment did not support it significantly. Consumers were found to be better off in the higher privacy regime although, the theoretical results made no such predictions. There was partial support for the efficiency being higher in a higher privacy regime.