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The Customer Economics of Internet Privacy

P. K. Kannan

Na Peng

University of Maryland

The World Wide Web has significantly reduced the costs of obtaining information about individuals, resulting in a widespread perception by consumers that their privacy is being eroded. The conventional wisdom among the technological cognoscenti seems to be that privacy will continue to erode, until it essentially disappears. The authors use a simple economic model to explore this conventional wisdom, under the assumption that there is no government intervention and privacy is left to free-market forces. They find support for the assertion that, under those conditions, the amount of privacy will decline over time and that privacy will be increasingly expensive to maintain. The authors conclude that a market for privacy will emerge, enabling customers to purchase a certain degree of privacy, no matter how easy it becomes for companies to obtain information, but the overall amount of privacy and privacy-based customer utility will continue to erode.

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