Abstract: The omnipresence of targeted advertising means that more and more consumer privacy information is accessed, transferred or stored, consumers are also becoming increasingly aware that their online activities are being monitored and their privacy is possibly being shared.Unlike consumer privacy information obtained directly, consumers actively sharing their privacy information makes the online seller’s price decision more complicated as the consumer’s privacy is no longer a constant for the seller and is instead flexibly controlled by the consumer. We mainly investigate sellers’ optimal price and advertising strategies in terms of the degree of consumer privacy sharing and try to answer these questions: (1)Do sellers benefit from consumer privacy sharing? (2)How does the degree of consumer privacy sharing affect price decisions? (3)In a competitive market, how does the neighbour seller’s product value affect price decisions?
To address these questions, we consider a Salop circular city model as it allows several sellers in the market. In this model, consumer privacy is endogenous, and the degree of consumer privacy sharing is actively managed by the consumer. Sellers first decide whether to use consumer privacy information to target their advertising and then bid for the advertising slot. There are two types of advertising: If sellers do not use consumer privacy information, they place a mass advertisement; If sellers use consumer privacy information, they place a targeted advertisement.
As a benchmark, we consider the duopoly case where two sellers sell products with the same value. We first compare the profit of the winning seller when using/not using consumer information and conclude that mass advertisements (not using consumer information) perform better than targeted advertisements (using consumer information) in the duopoly case.In addition, the consumer information shared by consumers increases the price to a certain extent, but when the level of consumer information sharing higher than a threshold, sellers need to reduce the price. Moreover, we also find that the effects of consumer information sharing on the price strategy are different for the dominant and non-dominant sellers. For dominant sellers, our results show that they would raise their price until the degree of consumer information sharing is greater than a threshold. For non-dominant sellers, the result seems more complicated as the effect of consumer information sharing on non-dominant sellers’ price could be different when non-dominant sellers’ product value is in a different segment.
Finally, in a multi-oligopoly, we find that the dominant seller’s profit is affected by the relative value of its product to that of the neighbour seller’s product, in addition to the degree of consumer information sharing. Specifically, the dominant seller’s profit increases with an increasing degree of consumer information sharing when the value of the seller’s product is sufficiently large. We also conclude that every seller’s demand and profit are affected by their neighbour sellers’ product value.
This paper has studied a Salop circular city model where consumers actively manage their information sharing. The general conclusion from our study is that using consumer information to target advertising will not benefit the seller in a duopoly. In other words, targeted advertisements might result in lower profits than mass advertisements in a duopoly. However, this changes when there are more sellers in the market.In addition, our paper implies that the effect of consumer information sharing on price decision is driven by different sellers. Furthermore, our analysis shows that the dominant seller can benefit from a medium degree of consumer information sharing in a multi-oligopoly when the seller’s product value is sufficiently large. These findings imply that sellers can gain consumer trust by giving customers access to manage their information.

Key words: privacy sharing level, targeted advertising, mass advertising, product pricing

摘要： 随着消费者对隐私信息的重视,越来越多的消费者开始主动管理其向商家所共享的隐私信息。本文考虑了一个拥有若干个商家的圆形城市模型,模型中商家根据是否利用消费者所共享的隐私信息来决定向消费者投放大众广告或定向广告,并根据消费者隐私信息共享水平的高低来分析商家应如何调整其产品定价策略。研究表明:(1)商家最终选择大众广告或是定向广告与平台中的商家数量有关,当商家数量超过一定阈值时,商家获益于定向广告,反之商家获益于大众广告;(2)消费者所共享的隐私信息可以在一定程度上促使商家提高产品定价,但当消费者的隐私信息共享水平超过一定范围后,商家则需降低产品的定价水平;(3)在有n位商家的竞争市场中,对于主导商家而言,消费者所共享的隐私信息可以使得其收益增加;对于其他商家而言,是否会受益于消费者所共享的隐私信息还需要综合考虑平台中相邻商家的产品价值大小。

关键词: 隐私信息共享水平, 定向广告, 大众广告, 产品定价