The Dark Side of Voluntary Data Sharing

To balance the need for privacy and the benefits of big-data analytics, regulators around the world are giving consumers control over their data, allowing them to choose whether or not to voluntarily share their purchase history data with firms. Intuition suggests that voluntary data sharing only benefits consumers who can now choose to share their data only when it is profitable to do so. To investigate this argument, we build a model in which a monopolistic firm sells a repeatedly purchased product to consumers over two periods, and consumers decide whether or not to share their purchase history data with the firm, who can use it in the future to price discriminate against them. We find that, compared to when data collection is completely outlawed, voluntary data sharing can benefit the firm but at its consumers’ expense. Moreover, regulations that mandate firms to better protect consumer data against data breaches can backfire on consumers. Finally, we show that under voluntary data sharing, a firm’s ability to offer consumers a monetary incentive to share their data can improve profits without hurting consumers. Taken together, these findings underscore the surprising effects of voluntary data sharing and caution public policymakers of how certain data policies that, on the surface, seem purely beneficial can lead to unintended consequences.