Consumer Privacy and Marketing Avoidance

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1 onsur Privacy an Marting Avoianc I-orn ann, ai-ung ui, To., I.P.. Png Rvis, August 5 Abstract W introuc t concpt of arting avoianc consur fforts to conca tsvs an to fct arting. T stting is on wr srs art so it troug soicitations to potntia consurs, t potntia consurs iffr in tir vau for t it, an t potntia consurs suffr ar fro rciving soicitations. r arting is a stratgic copnt wit concant by ow-vau consurs. nc, fforts by ow-vau consurs to conca tsvs wi incras t cost-ffctivnss of arting an a srs to art or. owvr, concant by ig-vau consurs as srs to art ss. Owing to t xtrnaity fro srs to consurs, tr is a car n for pubic poicy. A tax on soicitations sou ta account of bot t xpct ar to consurs an aso t costs of consur concant an fction inuc by t sr soicitations. Fro a consur s viwpoint, concant an fction ar substituts: bot ruc r iioo of bing soicit. ut ony concant affcts t ffctiv poo of consurs tat srs arss. Accoringy, fro a socia wfar prspctiv, fction is prfrab to concant. Univrsity of outrn aifornia; ationa Univrsity of ingapor; anyang Univrsity; ationa Univrsity of ingapor an Pariant of ingapor. orrsponing autor: Ivan Png, t: ; ttp:// Acnowgnts: W tan sinar participants at t U Marsa coo of usinss, IAD, ong ong Univrsity of cinc an Tcnoogy, an t Fra Tra oission, an spciay Grar uttrs, t itors an rfrs for vry pfu avic an suggstions.

2 . Introuction Privacy of prsona inforation is a y concrn for consurs: Tr as bn a w-ocunt transforation in consur privacy attitus ovr t past ca, oving concrns fro a ost attr for a inority of consurs in t 98s to an issu of ig intnsity xprss by or tan tr-fourt of Arican consurs in Wstin. onsurs us vio-rcorrs, TiVo, car-id, spa fitrs, pop-up bocrs, anonyous browsing, an otr vics an tcniqus to protct tir privacy an avoi arting. In t U.., ovr 5 iion tpon nubrs av bn rgistr wit t Fra Tra oission o not ca ist PI 4. uc consur actions to avoi arting prsnt critica cangs to artrs: Wat s an avrtisr to o wn t ost affunt custors arn't cop to watc TV corcias an ar, in fact, activy avoiing t? arns 3. Iprovnts in coputing tcnoogis ar crating bot nw tcniqus of arting an nw ways to avoi arting. Ts prsnt nw cangs to t arting profssion an pubic poicy ars. ow sou artrs rspon to consur avoianc of arting? ow o artrs an consurs intract, an ow os tcnoogy affct tir intraction? Wat is t appropriat pubic poicy towars arting activitis tat ipos ar on consurs? Gnray, prior anaytica rsarc in arting as ignor t ipact of arting on consur privacy an assu tat consurs wou passivy accpt avrtising an irct arting. In tis papr, w vop an anaytica o tat introucs t concpt of arting avoianc wit wic to arss issus of arting stratgy an pubic poicy. W focus on t nognous tra-off btwn sr arting an consur privacy: consurs can ony gt t it troug sr s arting, but t arting iposs costs on consurs an as t to xpn rsourcs on avoianc.

3 T stting copriss utip srs wo copt to art an intica prouct. Tr ar two consur sgnts: on sgnt as a igr vauation for t prouct tan t otr sgnt. Absnt t srs arting, consurs cannot buy t it. A consurs xprinc so ar fro t srs arting. A consur ay spn rsourcs to avoi arting in two ways concant or fction. At t point of ti tat ty incur arting xpniturs, srs cannot istinguis t two typs of consur. Furtr, srs ignor t ar caus by tir arting. W sow tat sr arting is a stratgic copnt wit concant by ow-vau consurs. fforts by ow-vau consurs to conca tsvs wi incras t cost-ffctivnss of arting an a srs to art or. owvr, concant by ig-vau consurs as srs to art ss. xt, owing to t xtrnaity fro srs to consurs, tr is a car n for pubic poicy. A tax on soicitations st qua to t xpct ar caus to consurs wou b insufficint. T tax sou aso ta account of t costs to consurs of concant an fction inuc by t sr soicitations. ot concant an fction ruc a consur s iioo of bing soicit. ut ony concant srins t ffctiv poo of consurs tat srs arss, an so, furtr incrass t xpct ar. Accoringy, fro a socia wfar prspctiv, fction is prfrab to concant. T nxt sction prsnts t bacgroun itratur, an t foowing ction 3 introucs t anaytica stting. ction 4 vops t consur-sr quiibriu an ction 5 prsnts wfar an pirica ipications. ction 6 concus wit iitations, xtnsions, an irctions for futur rsarc.

4 . acgroun itratur A substantia itratur in conoics an arting anayzs ow srs copt to acquir custors on insions of avrtising an pric uttrs 977; McAf 994; McGaan an Gawat 994; n an Iyr ; ay an Morgan an 4; Iyr an Pazga 3; iovanu 3. paraty, anaytica rsarc into privacy as consir ow artrs us prsona inforation to ffct pric iscriination or scrn out ba consurs n t a. ; n an Iyr ; Tayor 4; Acquisti an Varian 5; Watiu. owvr, for t ost part, prvious anaytica rsarc ignor t ar tat arting iposs on consurs. Martrs us prsona inforation to soicit nw an xisting custors, by irct ai, tpon, an fax, an ctronicay. Martrs aso proot goos an srvics troug avrtising in t ass ia. Avrtising an unsoicit contacts ipos inconvninc an otr costs on consurs. Martrs o not intrnaiz ts ars, an nc tn to ovr-spn on avrtising an irct arting rativ to t sociay optia v Ptty. Anrson an Paa 5 anayz a irct arting stting wr srs incur costs to sn ssags about so it to consurs, an consurs incur costs to opn t ssags. T it is avaiab ony troug t srs ssags. T srs ar trognous an offr proucts of iffring quaity. In tis scnario, an incras in t srs cost of counication can rais wfar by scrning out owr-quaity srs. T avrag prouct quaity wou ris an or consurs wou opn ssags arss to t. 3 y contrast wit Anrson an Paa 5, w pasiz trognity aong consurs, an, t actions tat consurs ta to avoi For a survy of t conoics of privacy, s ui an Png 6. T costs ipos ay iffr wit t avrtising iu Min an Ro. 3 Gantan an pig 4 consir t tra-off in softwar tat incorporats avrtising bannrs awar btwn t bnfit to consurs of rciving targt inforation wic iprovs tir coic of prouct against t privacy cost. 3

5 avrtising an soicitations, wat w ca arting avoianc. Motivat by t conoics of scurity oo an Png 994; Ayrs an vitt 998, w istinguis two fors of arting avoianc concant an fction. Tis gnraizs t concpt of a avoianc, aray rcogniz in t itratur pc an iott 997. In our frawor, a avoianc rprsnts fction. Our anaysis consirs t intrsts of trognous consurs wo iffr in tir vau for so it tat is ony avaiab troug sr arting. A consurs suffr ar fro arting. W o not ta an a priori position as to t rits of arting, but ratr, arss t nognous tra-off aong t bnfit of t it to consurs, t ar ipos on consurs by arting, consur costs of concant an fction, an srs arting costs tting W ar otivat by t rtai arting of ra stat brorag, obi tpon srvic, insuranc, agazin subscriptions, costics, an signr coting wr t focus of coptition is acquiring custors ratr tan pric. In any arts, ra stat brorag coissions ar fix, nc brors copt on srvic ratr tan pric. T-Mobi, Vrizon, an print ar rprsnt by utip outts an inpnnt rtairs, a of wic offr t sa srvic pans. iwis, in t insuranc art, Pruntia, tat Far, an AXA ar rprsnt by utip agnts an inpnnt brors wo copt for custors in prson an troug tarting. Ti an wsw subscriptions ar art troug utip intgrat an inpnnt canns suc as agazin insrts, Pubisrs aring ous, an t Intrnt. st aur an Rap aurn ar avrtis by utip partnt stors in t sa city. 5 4, aso, appa an ivnu 3. 5 Of 5 soicitations rciv in a ingapor aibox btwn Jun an August 5, t argst nubr igt wr snt by ra-stat brors, non of wic quot pric. On Juy 4

6 Accoringy, w assu tat pric, p, is fix for so it an tn srs copt troug soicitations to art it. T cost to sr of sning soicitations is, wr,, >, an >. Tis squnc of actions is consistnt wit avrtising an irct arting soicitations tat incu t prics of t its. For sipicity, w assu tat t cost of proucing t it is zro. Potntia consurs can buy t it ony if soicit, an in particuar, ty o not s out srs uttrs 977; Grossan an apiro 984; McAf 994; Anrson an Paa 5. Ty ar of two typs. Tr ar ig typs wo riv bnfit v fro t it, an ow typs wo riv bnfit λ v, wr λ < soicitation. 6. ot typs suffr t sa ar w fro rciving a onsurs can ta action to conca tsvs fro soicitations bing arss to t, for instanc, by rgistring wit t no un ai ist, subscribing to an unist tpon nubr, an using anonyous wb browsing. Givn tat a sr as snt a soicitation, t t probabiity tat a particuar consur is arss b, wr rprsnts t consur s ffort in concant an t function is a probabiity, wit, <, >, i 3, 5, six iffrnt ingapor rtairs avrtis t oia 6 at $8 in conunction wit ingapor Tco or tarub srvic pans. On August 7, 5, six iffrnt U.. wbsits avrtis on-yar subscriptions as foows: osopoitan a six carg $8, wsw fiv carg $3.97 an on, Aazon.co, carg $3., an Forbs prics ranging fro $9.95 to $9.99. During August 5, tr irct ai soicitations for Dirct TV wr rciv in a os Angs aibox: a tr rtairs carg $9.99 a ont for t first tr onts of a on-yar subscription. 6 Mr Orano oto of w Yor xpifis a ig-typ consur in t contxt of ai arting For Orano oto, o Day Is opt Witout o pa, Wa trt Journa, Marc 5, 4. Mor gnray, avoianc of ass avrtising varis systaticay wit consur ograpics an t avrtising iu pc an iott

7 an suc tat t function as a crasing azar rat, 7 8 i..,. 3 T cost of concant is, wr, >, an >. 4 Furtr, givn tat t consur as bn arss, s can invst ffort to fct soicitations, for instanc, by using TiVo to sip avrtisnts, subscribing to a tpon ca scrning srvic, or using spa fitrs. 9 t t conitiona probabiity tat s rcivs t soicitations b, wr rprsnts t consur s ffort in fction an, <, >, i, 5 an suc tat t function as a crasing azar rat, i..,. 6 T cost of fction is, wic function as t sa proprtis as tai in 4 for. T consurs ci on concant an fction at t sa ti as srs ci on soicitations. In t nxt stag, consurs ci wtr or not to buy. Figur scribs t tiing of actions. If a ig-typ consur rcivs soicitations fro utip srs, s purcass fro on of t srs at rano. 7 oncant is iprfct in t sns tat t consur cannot ruc t probabiity of bing arss bow so iniu v,. iiary, fction is iprfct. Raisticay, so ong as on as a posta arss, tpon nubr, or ai arss, rciving so aount of soicitations ss invitab. 8 In otr wors, t argina cras in probabiity of bing arss is non-incrasing as t v of concant incrass. 9 In i-4, Microsoft otai s artcrn was bocing aost 3 biion ssags aiy, wic rprsnt ovr 95 prcnt of a incoing spa Gats 4. 6

8 Figur rs st pric rs sn soicitations onsurs conca an fct ac ig-typ consur raws ranoy aong soicitations rciv an buys on unit T pric p λv, v is xognous. Foowing uttrs 977, Grossan an apiro 984, an McAf 994, w o t soicitations as raws wit rpacnt fro an ffctiv poo of consurs. ac consur s prsnc in t ffctiv poo is ruc by t xtnt of r ffort in concant. pcificay, w assu tat t ffctiv poo is, wr an. 7 y, tis spcification as t rasonab proprtis tat, if a, tn, a, an so,, an furtr, if a, tn, a, an nc, ], wic is t iniu prsnc of consurs in t ffctiv poo. To nsur tat t anaysis is tractab, w assu tat consurs an srs bav sytricay. To nsur tat t art is sufficinty profitab, so tat t stting is not trivia, w assu tat v p w. 8 T focus on sytric quiibria is coon to uc rsarc in avrtising an irct arting Grossan an apiro 984; McGaan an Gawat 994; Murr an ta 994; ay an Morgan an 4; Iyr an Pazga 3. 7

9 4. Mart quiibriu onsur oncant an Dfction inc srs st p λv, v, a ig-typ consur wo rcivs a soicitation wi buy t it, wi a ow-typ wo rcivs a soicitation wi not. Givn tat a sr as snt a soicitation, t probabiity tat a particuar consur rcivs t soicitation is. 9 A ig-typ consur s xpct nt utiity is r xpct nt bnfit fro consuing t it nt of t pric, ss t xpct ar fro soicitations, an ss t costs of concant an fction. r probabiity of consuing t it is t probabiity of rciving at ast on soicitation, wic is qua to on inus t probabiity of rciving no soicitations, nc r xpct nt bnfit fro consuption is i v p] i. T consur incurs ar, w, fro vry soicitation rciv. nc, r xpct ar fro soicitations rciv is i i w, wr i is t tota soicitations by a srs. i In sytric quiibriu, a srs sn t sa nubr of soicitations, i, a i,..,. ubstituting in an, an noting tat an rprsnt t costs of concant an fction rspctivy, t igtyp consur s xpct nt utiity is U,, v p] w W ar gratfu to a rviwr for obsrving tat t ig-typ consur bnfits fro t first soicitation rciv, an tn suffrs ar fro vry subsqunt on. 8

10 wr t conitiona xpct nt bnfit ss ar conitiona on bing arss an rciving a soicitation, v p] w. 3 y, sinc concant is costy, if t nt bnfit fro t it is ig noug, an t ar fro soicitations is ow noug tat, 4 tn t ig-typ consur wi coos zro concant. owvr, if 4 is not satisfi, tn s wi coos t v of concant tat iniizs t su of ar an concant cost ss xpct nt bnfit,. 5 T first-orr conition is, 6 wr, for sipicity, w ignor t ipact of concant on troug. Figur iustrats t ig-typ consur s nt utiity wn 4 os not o. Figur Intuitivy, wn t ffctiv poo of consurs is arg, ac iniviua consur s concant wou av a inia ipact on r prsnc in t ffctiv poo. 9

11 T ig-typ consur s coic of fction is siiar. Unr conition 4, s wi coos zro fction. Otrwis, s wi coos accoring to t first-orr conition,. 7 T anaysis for ow-typ consurs is siiar xcpt tat, sinc λ v < p, ty wou not buy t it, nc a ow-typ consur s xpct nt utiity is sipy U, w. 8 vinty, t ow-typ consur wi coos positiv vs of concant an fction, wic ar caractriz by t first-orr conitions w, 9 w. Proposition. onsurs concant an fction ar stratgic copnts uow t a. 985 wit t srs soicitations. 3 Intuitivy, if srs incras soicitations, tis ans or ar for owtyp consurs, so ty finity wi incras concant an fction. T rspons of ig-typ consurs pns on tir conitiona xpct nt bnfit ss ar,. If, ty o noting, wi if <, ty, i owtyp consurs, wi incras concant an fction. Finay, in sytric quiibriu, for a ig-typ consurs, an for a ow-typ consurs. nc, wit rgar to t ffctiv poo, an. Figur 3 sows t ig- an ow-typ consur concant as a function of sr soicitations. y Proposition, consur concant is incrasing in sr soicitation. Furtr, by coparing 6 an 9, it is 3 For brvity, t proofs of tis an a otr rsuts ar provi in t Appnix.

12 obvious tat, for a, t concant function of t ow-typ consur aways is to t rigt of tat of t ig-typ consur sinc t ig-typ consur gts positiv bnfit fro t it, s spns ss in concant. 4 T consurs fction stratgy is siiar. Figur 3,, r oicitation Rfr to Figur, wic picts t stps invov in aing a sa. uppos tat srs i coos i, wi sr cooss. onsir a igtyp consur wo as rciv a soicitation fro sr. If s rcivs no otr soicitation, s wi buy fro sr wit crtainty. owvr, if s rcivs soicitations fro otr srs, s wi buy wit probabiity / ] fro sr, sinc a srs carg t sa pric, p. Taing account of t nubr of ways in wic t srs can b sct, tn, conitiona on t consur aving bn arss an rciv a soicitation, t probabiity tat s wi buy fro sr is, To cacuat sr s xpct rvnu, w ust su ovr a t various possibiitis,,..,, ta account of t probabiity tat t consur is. 4 T saps of t consur concant raction functions pn on t functiona for of, but for our purposs, ty ar not iportant. W introuc t bu curvs atr: ty ar sr soicitations as a function of ow-typ ig-typ consur concant, oing fction an ig-typ ow-typ consur concant uncang.

13 ig-typ an t consur s ffort in concant an fction, an utipy by sr s nubr of soicitations an t pric. Accoringy, sr s xpct rvnu is p R. T nxt rsut provis a usfu sipification. a.. Appying a to, sr s profit is p Π. 3 T first-orr conition is p. ubstituting fro, tis bcos p ]. 4 Proposition. rs soicitation is a stratgic copnt to concant by ow-typ consurs, an a stratgic substitut to concant an fction by ig-typ consurs. Intuitivy, if ow-typ consurs incras concant, ty ruc tir prsnc an nc nric t proportion of ig typs in t ffctiv poo of consurs. nc, srs wou incras soicitations. y contrast, if ig-typ consurs incras concant an fction, ty iut t ffctiv poo of consurs. Accoringy, srs wou ruc soicitations. Rfrring to Figur 3, t upwar-soping bu curv picts sr soicitation as a function of ow-typ consur concant, oing fctions an ig-typ consur concant constant, wi t ownwar-soping

14 bu curv picts sr soicitation as a function of ig-typ consur concant, oing fctions an ow-typ consur concant 5 6 constant. onsur-r quiibriu To nsur tat t stting is not trivia, w ust prov t xistnc of quiibriu, an in particuar, tat srs wi want to sn soicitations. W stat tis foray in a. a. Tr xists a non-trivia quiibriu. Rfrring to 3, if, t quiibriu is fin by t srs an ow-typ consurs, i.., conitions 4, 9, an, wi if, t quiibriu is fin by t srs an bot consur typs, i.., conitions 4, 6, 7, 9, an. Gnray, w cannot ru out t possibiity of utip quiibria. T raction functions of t srs an ow-typ consurs bot sop upwar, nc it is possib tat ty wi intrsct or tan onc. To nsur tat t quiibriu is uniqu, w n to spcify t tir rivativs of t concant, fction, an cost functions. 5 T bu curvs corrspon to cross-sctions of t sr soicitation raction function wic is a surfac wit rspct to consur concant an fction. As wit t consur raction functions, t sap of t sr soicitation function is not ssntia. 6 In t Appnix, spcificay, t proof of a, w sow tat / >. iiary, it can b sown tat / >. nc, t iagra for consur fction is ssntiay t sa as Figur 3. 3

15 4 5. Wfar an pirica Ipications Wfar is t xpct bnfit tat t it provis to ig-typ consurs ss t srs soicitation cost, t ar caus by soicitations to bot consur typs, an t costs of concant an fction to bot consur typs. Fro 3, t xpct bnfit fro t it to ig-typ consurs is tis t bnfit convy by on sr, i..,. ] ] v v nc, wfar is. ] w w v W 5 oparing a typica sr s profit an socia wfar quations 3 an 5, tr ar two ssntia iffrncs: rs ignor t ar caus by soicitations an consurs fforts in concant an tction. Ts xtrnaitis caus srs soicitations to xc t sociay optia v. rs carg ss tan v for t it, nc aving ig-typ consurs wit so surpus. To tis xtnt, srs soicitations fa sort of t sociay optia v. Tis ffct is a stanar rsut of any anaysis of iprfct coptition. Our first wfar rsut foows iiaty. It arsss t poicy qustion of ow to inuc srs to intrnaiz t xtrnaitis tat ty ipos on consurs. A postag carg or tax on ai as bn wiy avocat as a way to rsov t prob of spa, ost faousy by Microsoft co-

16 founr, i Gats.co 4. ow sou t carg b st? It igt s intuitiv to st t carg qua to t xpct ar caus by soicitations. owvr, our anaysis ipis suc a carg wou b too ow bcaus it ovroos consurs concant an fction costs. oparing a typica sr s profit an socia wfar quations 3 an 5, t foowing carg wou aign sr s profit wit socia wfar: Proposition 3. T optia carg pr unit of sr soicitations is τ ] w v p]. Intuitivy, t carg is crasing in t xpct surpus of ig-typ consurs, an incrasing wit t xpct ar caus by soicitations an consurs concant an fction costs. Our nxt wfar rsut focuss on t rativ socia vau of concant an fction. Govrnnts proot bot concant o not contact ists an fction ucating consurs to us spa fitrs. Wic sou ty pasiz? Proposition 4. If t nubr of srs,, is sufficinty arg, fction is sociay prfrab to concant. Intuitivy, fction wors by rucing t probabiity of rciving a soicitation tat as bn arss to t consur, an so, rucs t xpct ar an, for a ig-typ consur, aso rucs t xpct nt bnfit fro consuing t it. y contrast, concant as two ffcts. On is to ruc t consur s probabiity of bing arss an ffct wic is siiar to tat of fction. T otr ffct of concant is quit subt. It srins t ffctiv poo of consurs. uprficiay, tis igt s to b 5

17 inconsquntia, as it sipy causs t sa nubr of sr soicitations to b spra ovr fwr consurs. owvr, it os attr, bcaus for ig-typ consurs, on soicitation is vauab, wi aitiona soicitations caus ar. T sar t poo ovr wic t soicitations ar spra, t igr wi b t probabiity tat ig-typ consurs rciv or tan on soicitation. Accoringy, t otr ffct of concant aso rucs socia wfar. Proposition 4 ipis tat, in arts wic ar or coptitiv in t sns of aving or srs, poicy-ars sou pay or attntion to fction tan concant. For instanc, to t xtnt tat ntry barrirs into ai arting ar owr tan barrirs into otr fors of irct arting, tr wi b rativy or onin rtairs. Accoringy, poicy-ars sou pasiz fction of spa rativy or tan concant of ai arsss. 7 Givn t sr-consur quiibriu, w can coput t ffcts of cangs in t an, cost, an coptition paratrs. Gnray, paratr cangs av irct ffcts troug t srs profit an t consurs xpct nt bnfit, ar, an costs. Ty aso av inirct ffcts, as t irct ffct on on party causs its raction function to sift, tus oving t quiibriu. In orr to nsur tat t quiibriu is uniqu, an nc tat t coparativ statics ar aningfu, w assu spcific functiona fors for concant, fction, an t costs of soicitation, concant, an fction, viz., an an, 6 c, c, an c, 7 wic w ca t rciproca-quaratic spcification. 7 onctur: On or proposition Incras in coptition igr wi a to owr wfar. Dirct ffct: incras in xpct bnfit outwig by incras in xpct ar. ut wat about ffcts troug cangs in,,? 6

18 Wit t rciproca-quaratic spcification, w coput t coparativ statics as rport in t foowing Tab in t cas of, i.., wr t ig-typ consurs prfr to rciv soicitations. Tab ffct of an incras in On variab v w i? - - -?, i? - - -?, i? - - -? owvr, in t cas of <, ost of coparativ statics a abiguous sign as t irct an inirct ffcts wr in opposit irctions. In 3, t U.. Fra Tra oission stabis a nationa o not ca rgistry. Tis wou av ruc t cost of concant fro tarting. Accoring to t Tab, srs wou rspon by incrasing soicitations, as t ffctiv poo of consurs bcos ricr in ig-typ consurs. T Dirct Marting Association 4, provis so supportiv pirica vinc: For tos irct artrs wos priary obctiv was to soicit irct orr sas, tpon arting again prouc t igst rspons rat 5.78%, Tpon aso t pac in trs of ovra fficincy for irct orr artrs... Praps tis was u to t institution of Do-ot-a aws, aving a sar, but or prouctiv bas to proot to pag 9. y 3, t function is crasing in, nc t sar is, t or iy is. Rfr to DMA rport, for typs of irct arting tat ar rativy ss us, tn wou b rativy owr, an nc, is or iy. Accoringy, to t xtnt tat tarting invovs fwr coptitors tan ai arting, is or iy an nc t Tab is or iy to appy. 7

19 6. oncuing Rars onsurs wiy us VRs, TiVo, car-id, spa fitrs, anonyous browsing, an any otr vics a to avoi arting, an so, protct tir privacy. Our contribution is to introuc consiration of arting avoianc into anaytica rsarc. Tis fits into t broar contxt of art ractions to t 4Ps of arting, wit t tr otrs bing cannibaization of prouct offrings, confict in istribution canns, coptition in pricing. Wi w st t anaysis in trs of irct arting, it aso appis to broacast avrtising wit t foowing iitation. inc broacast avrtising is not targt, consurs can ony avoi by fction an not by concant. Accoringy, a of our rsuts wit rspct to fction appy to broacast avrtising. W assu tat t pric of t it was xognous. It is fairy straigtforwar to aow t upstra anufacturr or srvic provir to trin t pric of t it. ary, it wou st t pric at itr λ v or v, pning on wtr it is rativy or profitab to st a owr pric an s to bot consur typs or st a ig pric an s ony to t ig-typ consurs. T pric wou affct sr soicitation an consur concant an fction in fairy obvious ways. W assu tat soicitations caus t sa ar w to bot ig- an ow-typ consurs. Raisticay, t ar caus by soicitations igt iffr btwn t sgnts. For instanc, pop wit igr inco wou av igr opportunity cost of ti, an nc bot bnfit or fro t it bing art an suffr or fro soicitations. Wat w n for t y rsuts is tat for t ig sgnt, t bnfit nt of ar xcs tat for t ow sgnt. Foray, suppos tat ow-typ consurs suffr ar μ w, wr μ <, tn wat w n is tat v p w > λv p μw. 8 W assu a gnra function for t srs cost of soicitations. uttrs 977, Grossan an apiro 984, an McAf 994 suggst t 8 To confir. 8

20 foowing spcification of t soicitation cost: c n, wr c is t unit cost of ac raw fro t ffctiv poo of consurs. As xpain by McAf, tis foruation xibits constant rturns to sca in t sns tat if a givn quantity of soicitations is ivi into two batcs, t tota cost of soicitation wou rain t sa. Taing tis as a bncar, w cou xpor t ipications of incrasing an crasing rturns to sca in soicitation. 9

21 Rfrncs Acquisti, Assanro, an a R. Varian, onitioning Prics on Purcas istory, Marting cinc, Vo. 4 o. 3, ur 5. Anrson, ion P., an Anré Paa, A Tory of Inforation Ovroa, Woring Papr, Dpt of conoics, Univrsity of Virginia, January 5. Ayrs, Ian, an tvn D. vitt, Masuring t Positiv xtrnaitis fro Unobsrvab Victi Prcaution: An pirica Anaysis of oac, Quartry Journa of conoics, Vo. 3 o., 998, arns, To, Tacing TiVo, artingprofs.co, Apri 4, 3. ay, Mica R., an Jon Morgan, Inforation Gatprs on t Intrnt an t optitivnss of oognous Prouct Marts, Arican conoic Rviw, Vo. 9, o. 3, Jun, ay, Mica R., an Jon Morgan, ran Awarnss an Pric optition in Onin Marts, Iniana Univrsity an Univrsity of aifornia, ry, Fbruary 4. uttrs, Grar R., quiibriu Distributions of as an Avrtising Prics, Rviw of conoic tuis, Vo. 44 o. 3, 977, uow, Jry, Jon Ganaopos, an Pau prr, Mutiart Oigopoy: tratgic ubstituts an opnts, Journa of Poitica conoy, Vo. 93 o. 3, Jun 985, azoari, Giacoo, an Assanro Pavan, Optia Dsign of Privacy Poicis, Dpartnt of conoics, ortwstrn Univrsity, May. appa, Ra, an. ivnu, Onin Prsonaization an Privacy: argaining for ustor Inforation, Woring Papr, U Marsa coo of usinss, 3. n, Yuxin, an Gans Iyr, onsur Arssabiity an ustoiz Pricing, Marting cinc, Vo. 3, o., pring, n, Yuxin, aravarti arasian, an Z. Jon Zang, Iniviua Marting wit Iprfct Targtabiity, Marting cinc, Vo. o., Wintr, 3-4. iovanu, Ioana, Avrtising, ran oyaty an Pricing, IDA, arcona, pain, August 3..co, Gats: uy staps to sn -ai, Marc 5, 4. Dirct Marting Association, T DMA 4 Rspons Rat Rport, w Yor, Octobr 4. PI ctronic Privacy Inforation ntr, Do-ot-a Rgistry, ttp:// Accss August 6, 5. Gantan, atay, an Yossi pig, Awar, arwar, an onsur Privacy, Woring Papr o. 4-, T Institut, Octobr 4 ttp://ssrn.co/abstract6874 Gats, i, Prsrving an nancing t nfits of ai A Progrss Rport, Microsoft xcutiv -ai, Jun 8, 4.

22 Grossan, Gn M., an ar apiro, Inforativ Avrtising wit Diffrntiat Proucts, Rviw of conoic tuis, Vo. 5, o., January 984, ann, I orn, ang-yong T., ai-ung ui, Ivan P. Png, as an Prootion: A Mor Gnra Mo, Manuscript, ationa Univrsity of ingapor, 4. oo, ui-wn, an I.P.. Png, Privat curity: Dtrrnt or Divrsion? Intrnationa Rviw of aw an conoics, Vo. 4, Marc 994, 87-. McAf, R. Prston, nognous Avaiabiity, arts, an Mrgr in an quiibriu Pric Disprsion, Journa of conoic Tory, Vo. 6, 994, McGaan, A. M., an Pana Gawat, optition to Rtain ustors, Marting cinc, Vo. 3, o., pring 994, Min, Gorg R., an Anrw J. Ro, onsur Privacy an a Rova Across Dirct Marting anns, xporing Opt-In an Opt-Out Atrnativs, Journa of Pubic Poicy an Marting, Vo. 9, o., Fa, Ptty, Ross D. Marting Witout onsnt: onsur oic an osts, Privacy, an Pubic Poicy, Journa of Pubic Poicy an Marting, Vo. 9, o., pring, pp pc, Pau urgi, an Mica T. iott, Prictors of avrtising avoianc in print an broacast ia, Journa of Avrtising, Vo. 6 o. 3, Fa 997, Tayor, urtis R., onsur Privacy an t Mart for ustor Inforation, RAD Journa of conoics, Vo. 35 o. 4, Wintr 4, U.. Fra Tra oission, ai Arss arvsting: ow pars Rap Wat You ow, FT onsur Art, ovbr. Varian, a R., A Mo of as, Arican conoic Rviw, Vo. 6 o. 4, ptbr 98, Watiu, uc, Privacy, xposur an Pric Discriination, arvar usinss coo Marting Rsarc Papr -3, Octobr. Wstin, Aan F., Tstiony bfor U.. ous of Rprsntativs, oitt on nrgy an orc, ubcoitt on orc, Tra, an onsur Protction, aring on Opinion urvys: Wat onsurs av To ay About Inforation Privacy, May 8,.

23 Appnix Proof of Proposition : onsir a ig-typ consur. If 4 os, s cooss zro concant, nc an incras in srs soicitations os not affct r concant. If 4 os not o, tn, by 3, > p v w, A an r coic of concant is givn by 6. for consiring 6, so priinary anaysis is usfu. y 3, iffrntiating wit rspct to, ] p v w. A y A an a,, > > p v w A3 sinc t ast xprssion is ust t first tr in t suation on t ft-an si of t inquaity. ubstituting fro A3 in A, w av ] > p v w. A4 xt, w cai tat /. Totay iffrntiating 6 an 7,, A5, A6 wr w ignor t ipact of an on. quating A5 wit A6,

24 3, A7 wic sipifis to, an nc,. A8 inc 4 os not o, <. y an 4, / <, / <, / >, an / >. Furtr, by 3 an 6, an. nc, t cofficint of on t rigt an si of A8 is positiv, an, i >. A9 ubstituting ] / in A7,, y A9 an t sa obsrvations as foowing A8, t cofficint of on t rigt an si of A8 is positiv. Tus, by A4,

25 4 i >, A wic is t rsut. T proof for fction is siiar, as is t proof for t ow-typ consurs. ] Proof of a : ot tat!!!!!!!!! an nc,. A ow, A wr t first stp cangs t inx of suation, t scon stp uss, an t tir stp appis t binoia tor. ubstituting fro A in A yis t rsut. ]

26 5 Proof of Proposition : onsir t ft-an si of 4. ary, it is incrasing in an crasing in, wic provs tat t sr s soicitation is a stratgic copnt wit t ow-typ consur s concant, an a stratgic substitut wit t ig-typ consur s fction. Totay iffrntiating 4, ] p p p p p ] ] ] ] ]. A3 uppos,,, an t. Φ A4 Tn A3 sipifis to, p Φ A5 owvr, by A an A,

27 >, A6 sinc t ast xprssion is ust t first tr in t suation on t ft-an si of t inquaity. ubstituting A6 into A4, Φ >. ow, by, / <, nc t cofficint of on t rigt-an si of A5 is ngativ. y, / > an nc, by A5, / <, wic ipis tat t sr s soicitation is a stratgic substitut wit t ig-typ consur s concant. ] Proof of a : Diffrntiating 3 wit rspct to, v p] w. A7 Diffrntiating again, At, ] ] < v p. an / >, sinc v p > w. y A7, for sufficinty arg, / <. ot tat pns on an troug an. Accoringy, tr xists, > fin by ~, ~, A8 an suc tat, for,,, tn >. ~ Figur 4 6

28 ~,, Rfr to Figur 4. uppos tat t ig-typ consurs coos zro concant an fction,. W first sow tat t sr soicitation function,,, wit, intrscts t -axis at a v >. y an 5, > an >. o, t ft-an si of 4 is positiv. ow, by, / at. nc, by 4, > wn, i..,. > xt, by Proposition, t soicitation function is crasing in, wi by, if, tn /, an so, t rigt-an si of A5 convrgs to zro, wic ipis tat /, i.., tat sr soicitations tn towars an asyptot as. Furtr, by Proposition, t ow-typ consurs concant function is incrasing, wi by 9, if an as. Accoringy, t sr soicitation an ow-typ consur concant functions wi intrsct at so,, wr > an >. ~ If,, tn, by A8, t ig-typ consurs wou coos zro concant an fction, wic is consistnt wit t initia supposition. Accoringy,,,,,, wit an wr sovs, constituts t sr-consur quiibriu. ~ owvr, if >,, t ig-typ consurs wou coos positiv vs of concant an fction, > an >, wic is not consistnt wit t origina supposition. Tn, t an, an now r-coput t sr soicitation function,,, iustrat by t bron 7

29 8 curv in Figur 4. y Proposition, t incras in an wou sift t srs soicitation function ownwars, an so, sift its intrsction wit t ow-typ consur concant function to so,. Rfrring to t ig-typ consur concant an fction, if an, A9 tn,,,,, wr sovs, constituts t sr-consur quiibriu. owvr, if > or >, tn continu to rais an by sa incrnts an rpat t abov procur unti t intrsction of t sr soicitation an ow-typ concant curvs satisfis t quivant of conition A9. Figur 3 iustrats t quiibriu. ] Proof of Proposition 4: T irct ffct of ig-typ consur concant on wfar ignoring consquntia ffcts on consur fction an sr soicitation, ] ] ] ] w w v v W A iiary, t irct ffct of ig-typ consur fction on wfar,. ] w v W A3 uppos tat.,...,, tn, subtracting A3 fro A,

30 9, ] ] ] ] ] ] < w v v W W A4 by A6 an sinc / <. Accoringy, W W <, A3 wic provs t rsut for ig-typ consurs. iwis, t irct ffct of t ow-typ consurs concant, ] ] ] ] w w v W A4 an irct ffct of ow-typ consur fction on wfar,. w W A5 uppos tat.,...,, tn, subtracting A5 fro A4,. ] ] ] ] w v W W A6 inc / <, t sign of A6 is tat of w v ] ]. A7 y, >, nc, for sufficinty arg, < w v,

31 an, nc by A6 an A7, W W <, A8 sinc / <. Tis provs t rsut for ow-typ consurs. ] 3