Externalities in the Demand for Privacy: Evidence from the Do-Not- Call Registry Khim-Yong Goh, NUS...
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Transcript of Externalities in the Demand for Privacy: Evidence from the Do-Not- Call Registry Khim-Yong Goh, NUS...
Externalities in the Demand for Privacy: Evidence from the Do-Not-Call Registry
Khim-Yong Goh, NUSKai-Lung Hui, HKUST
I.P.L. Png, NUS
WISSP, October 2010 2
Privacy and Regulation
• “Privacy is a fundamental right that people do care about.”
Pamela Jones Harbour, Commissioner of U.S. FTC
• Existing research has been lagging behind:– Surveys and laboratory experiments– Little empirical research about real behavior– Mostly study direct benefits/costs of privacy, not
externalities between consumers
WISSP, October 2010 3
Externalities
• How one person’s decision affect others– Pollution, public good, etc.
• Two types of externalities among consumers related to privacy– Preference externalities: How consumers’ product
preferences affect others– Strategic marketing avoidance: How consumers’
marketing avoidance efforts affect others
WISSP, October 2010 4
Research Objectives
• Using real registration data from the U.S. Do Not Call Registry: -– Identify the presence of preference externalities
vis-à-vis strategic marketing avoidance in the demand for privacy
– Draw implications on optimal government intervention and vendor responses
WISSP, October 2010 5
Theory – Preference Externalities
• Reasons for preference externalities– Fixed costs in retailing limited products– Incomplete information on consumer preferences
product configuration based on aggregate attributes, e.g., age and gender
– These apply equally well to direct marketing• Within-segment: demand when the size of the
same segment increases• Cross-segment: demand when the size of other
segments increases
WISSP, October 2010 6
Theory – Preference Externalities
• The larger the size of a demographic segment the more likely a person will find the products that she wants via direct marketing the less likely that she will sign up for DNC
• H1 (Preference externalities): Marketing avoidance in a particular demographic segment would decrease with the size of that segment
WISSP, October 2010 7
Theory – Strategic Marketing Avoidance
• Vendors ignore harms caused by solicitations• Consumers avoid marketing when the harms
exceed the benefits from direct marketing• Marketing avoidance facilities serve to “filter”
the population for vendors• What would vendors do when the population
becomes “richer”?• How would remaining consumers respond?
WISSP, October 2010 8
Theory – Strategic Marketing Avoidance
• In general, larger consumer segments stronger impact on vendors’ expected profits due to marketing avoidance stronger strategic complementarity
• H2 (Strategic marketing avoidance): Marketing avoidance in a particular demographic segment would increase with the size of that segment
WISSP, October 2010 9
The DNC Registry
• Fixed line and mobile, not business numbers• Telemarketers must check phone numbers
against DNC no less frequently than 31 days• Registrations were indefinite • Desirable characteristics
– Real observations of consumer choices– Free service, low sign up cost, and no competition– Covers entire USA; lots of variations in consumer
demographics across regions
WISSP, October 2010 10
Data Sources, Issues, etc.
• County- and MSA-level population data from U.S. Census Bureau
01
23
45
Reg
istr
atio
ns (
mill
ion
s)
0 10 20 30 40 50Week
Our equilibrium state
WISSP, October 2010 11
Preference Externalities: Evidence
WISSP, October 2010 12
Preference Externalities: Evidence
WISSP, October 2010 13
Marketing Avoidance: Evidence
• There was concomitant increase in consumer purchase of directly marketed items and marketing avoidance
WISSP, October 2010 14
Empirical Model
• DNC registration rates:
• With help of population data, specifically,
• Integrating the above equations,
-ve preference externalities+ve strategic marketing avoidance
WISSP, October 2010 15
ResultsSMA among high-income people
PE among less-educated people
SMA among Hispanics and non-Hispanics
SMA among non-Spanish-only speakers
WISSP, October 2010 16
Robustness
Different equilibrium states
Perhaps the effects were due to direct communications?
Maybe consumer heterogeneity mattered?
WISSP, October 2010 17
County-Level Markets
• DNC registration rates:
• Estimation equation,
• Within-segment parameters could be identified, but not cross-segment parameters
WISSP, October 2010 18
County-Level Markets: Results
Fairly consistent with the MSA-level results…
WISSP, October 2010 19
Summary of findings
• Strategic marketing avoidance: High income, age, Hispanic ethnicity, non-Spanish-only speaking consumers
• Preference externalities: Less educated consumers– Waldfogel (2003, RJE) and George and Waldfogel
(2003, JPE): Preference externalities among black, white, and Hispanic ethnicity, but not education in radio and newspaper markets
– Our (telemarketing) results are opposite
WISSP, October 2010 20
Implications (1)
• Evidence of strategic marketing avoidance low-value consumers opted out More profitable “market” for the vendors Opt out facilities could indeed be helpful to vendors!
WISSP, October 2010 21
Practical Suggestions
• Direct marketers should support “opt out” facilities because such facilities help refine marketing lists
• Once this is understood, there will be less need for government to offer such services
– Should not “over-respond” to such refinement of marketing lists
• (otherwise “profitable”) Consumers may strategically respond by opting out
• Possible exception on competition law so that direct marketers can agree to limit solicitations?
WISSP, October 2010 22
Implications (2)
• Preference externalities segmented by education either:– Telemarketers have not segmented markets by
education fine enough, or– Product customization is too low in that market
• Perhaps refine offering by education level?– Financial/investment services, or educational
services…
WISSP, October 2010 23
Concluding Remarks
• Evidence of externalities strong justification for government regulation of privacy– These are beyond “standard” reasons, such as
consumer myopia or protecting vulnerable segments, e.g., children
WISSP, October 2010 24
Thank you!