Endogenous Outside Option and Data Privacy

ABSTRACT I study the implications of data privacy when consumers' outside options are endogenously determined by their efforts. “Data control” refers to consumers' ability to opt out of data collection on their efforts. “Data disclosure rate” refers to the likelihood that the collected data are shared with a monopolist. I examine their differences and consider how their interplay affects welfare. Without data control, the data disclosure rate affects the monopolist's profit nonmonotonically but has no impact on consumer welfare. More data control always decreases the monopolist's profit. But if combined with an intermediate data disclosure rate, data control improves consumer welfare.