Pricing strategies in electronic marketplaces with privacy-enhancing technologies

Abstract

Collecting customer information in electronic commerce and respecting consumers’ privacy preferences are fundamentally competing goals. This article studies the effects of emerging user-controlled privacy-enhancing technologies on pricing strategies pursued by vendors. In particular, identity management systems that allow users to interact pseudonymously with businesses thwart the vendors’ efforts to set different prices based on user attributes or purchase histories. Applying micro-economic models, we will compare different possible regimes for the implementation of privacy-enhancing technologies, analyse the conditions under which it is profitable for vendors to support privacy-enhancing identity management systems and study respective welfare implications. Accordingly, we will address the basic questions of whether and how such technologies will become ready to be brought to the market.