Opt In Versus Opt Out: A Free-Entry Analysis of Privacy Policies

There is much debate on how the flow of information between firms should be organized, and whether existing privacy laws should be amended. We offer a welfare comparison of the three main current policies towards consumer privacy — anonymity, opt in, and opt out — within a two-period model of localized competition. We show that when consumers find it too costly to opt in or opt out, privacy policies shape firms’ ability to collect and use customer information, and affect their pricing strategy and entry decision differently. The free-entry analysis reveals that social welfare is non-monotonic in the degree of privacy protection. Opt out is the socially preferred privacy policy while opt in socially underperforms anonymity. Consumers never opt out and choose to opt in only when its cost is sufficiently low. Only when opting in is cost-free do the opt-in and opt-out privacy policies coincide.privacy, price discrimination, monopolistic competition, welfare

Opt In versus Opt Out: A Free-Entry Analysis of Privacy Policies

There is much debate on how the flow of information between firms should be organized, and whether existing privacy laws should be amended.We offer a welfare comparison of the three main current policies towards consumer privacy - anonymity, opt in, and opt out - within a two-period model of localized competition.We show that when consumers find it too costly to opt in or opt out, privacy policies shape firms' ability to collect and use customer information, and affect their pricing strategy and entry decision differently.The free-entry analysis reveals that social welfare is non-monotonic in the degree of privacy protection.Opt out is the socially preferred privacy policy while opt in socially underperforms anonymity.Consumers never opt out and choose to opt in only when its cost is sufficiently low.Only when opting in is cost-free do the opt-in and opt-out privacy policies coincide.privacy;price discrimination;monopolistic competition;welfare

Privacy Management and Optimal Pricing in People-Centric Sensing

With the emerging sensing technologies such as mobile crowdsensing and Internet of Things (IoT), people-centric data can be efficiently collected and used for analytics and optimization purposes. This data is typically required to develop and render people-centric services. In this paper, we address the privacy implication, optimal pricing, and bundling of people-centric services. We first define the inverse correlation between the service quality and privacy level from data analytics perspectives. We then present the profit maximization models of selling standalone, complementary, and substitute services. Specifically, the closed-form solutions of the optimal privacy level and subscription fee are derived to maximize the gross profit of service providers. For interrelated people-centric services, we show that cooperation by service bundling of complementary services is profitable compared to the separate sales but detrimental for substitutes. We also show that the market value of a service bundle is correlated with the degree of contingency between the interrelated services. Finally, we incorporate the profit sharing models from game theory for dividing the bundling profit among the cooperative service providers.Comment: 16 page

The Value of Knowing Your Enemy

Many auction settings implicitly or explicitly require that bidders are treated equally ex-ante. This may be because discrimination is philosophically or legally impermissible, or because it is practically difficult to implement or impossible to enforce. We study so-called {\em anonymous} auctions to understand the revenue tradeoffs and to develop simple anonymous auctions that are approximately optimal. We consider digital goods settings and show that the optimal anonymous, dominant strategy incentive compatible auction has an intuitive structure --- imagine that bidders are randomly permuted before the auction, then infer a posterior belief about bidder i's valuation from the values of other bidders and set a posted price that maximizes revenue given this posterior. We prove that no anonymous mechanism can guarantee an approximation better than O(n) to the optimal revenue in the worst case (or O(log n) for regular distributions) and that even posted price mechanisms match those guarantees. Understanding that the real power of anonymous mechanisms comes when the auctioneer can infer the bidder identities accurately, we show a tight O(k) approximation guarantee when each bidder can be confused with at most k "higher types". Moreover, we introduce a simple mechanism based on n target prices that is asymptotically optimal and build on this mechanism to extend our results to m-unit auctions and sponsored search

Decreasing Serial Cost Sharing under Economies to Scale

We consider the problem of cost sharing in the presence of increasing returns to scale and potential strategic behavior on the part of consumers. We show that any smooth and strictly monotonic mechanism for which a Nash equilibrium exists for all profiles of convex and monotonic preferences must be dictatorial. However, we propose a cost sharing mechanism, the decreasing serial mechanism, for which an interesting domain restriction ensures existence of a noncooperative equilibrium for its cost sharing game. A characterization theorem of the mechanism based on the strategic properties of existence, uniqueness, and efficiency of its noncooperative equilibrium is provided.Publicad

Capturing Aggregate Flexibility in Demand Response

Flexibility in electric power consumption can be leveraged by Demand Response (DR) programs. The goal of this paper is to systematically capture the inherent aggregate flexibility of a population of appliances. We do so by clustering individual loads based on their characteristics and service constraints. We highlight the challenges associated with learning the customer response to economic incentives while applying demand side management to heterogeneous appliances. We also develop a framework to quantify customer privacy in direct load scheduling programs.Comment: Submitted to IEEE CDC 201

Economic Policy Analysis and the Internet: Coming to Terms with a Telecommunications Anomaly

The significant set of public policy issues for economic analysis that arise from the tensions between the ‘special benefits’ of the Internet as a platform for innovation, and the drawbacks of the “anomalous” features of the Internet viewed as simply one among the array of telecommunications systems, is the focus of discussion in this chapter. Economists concerned with industrial organization and regulation (including antitrust and merger law) initially found new scope for application of their expertise in conventional policy analyses of the Internet’s interactions with other segments of the telecommunications sector (broadcast and cable television, radio and telephone), and emphasized the potential congestion problems posed by user anonymity and flat rate pricing. Policy issues of a more dynamic kind have subsequently come to the fore. These involve classic tradeoffs between greater efficiency and producer and consumer surpluses today, and a potential for more innovation in Web-based products and service in the future. Many such tradeoffs involve choices such as that between policies that would preserve the original ‘end-to-end’ design of the original Internet architecture, and those that would be more encouraging of market-driven deployment of new technologies that afforded ISPs with greater market power the opportunity to offer (and extract greater profits from) restricted-Web services that consumers valued highly, such as secure and private VOIP.public policy, telecommunications, Web-based products, user anonymity