Study on monetising privacy. An economic model for pricing personal information


Source/ download :

An economic model for pricing personal information ENISA, Template 11.9999 Normal 0 false false false MicrosoftInternetExplorer4

The value of data privacy is about 65 cents, according to a study (February 2012) “Study on Monetising Privacy: An Economic Model for Pricing Personal Information” by researchers from DIW Berlin, the German Institute for Economic Research, and the University of Cambridge in the UK. The study was sponsored and released by ENISA, the European Network and Information Sharing Agency.

The study analyzes the monetisation of privacy, or a consumer's decision of disclosure or non-disclosure of personal data in relation to a purchase transaction. The researchers investigated whether or not customers of online services would pay a mark-up to an online service provider who protected their information better? In it, researchers found that consumers consistently prefer companies that protect the privacy of their data over companies that don’t. Unfortunately, that preference for privacy wasn’t very strong.


Summary: Personal data is nowadays traded like other commodities in the market place, yet our understanding of cost–benefit trade-offs that individuals undertake when making purchases on the Internet and disclosing personal data is far from complete. This study analyses the monetisation of privacy. ‘Monetising privacy’ refers to a consumer’s decision of disclosure or non-disclosure of personal data in relation to a purchase transaction.

o       Privacy is a human right; thinking about the economics of privacy does not change this basic fact. The authors of this report consider an economic analysis of privacy as complementary to the legal analysis as it improves our understanding of human decision-making with respect to personal data.  

o       Do some customers of online services pay for privacy? Do some individuals value their privacy enough to pay a mark-up to an online service provider who protects their information better? How is this related to personalisation of services? The main goal of this report is to enable a better understanding of the interaction of personalisation, privacy concerns and competition between online service providers.

o       Consumers benefit from personalisation of products on the one hand, but might be locked in to services on the other. Moreover, personalisation also bears a privacy risk, i.e. that data may be compromised once disclosed to a service provider.

o       This report employs different methods in order to analyse the questions above. A theoretical model is introduced that takes into account the competition between two service providers. In this respect, consumers may select the service provider of their choice, depending on their privacy concerns and the offers made by service providers. In a variation of the model, consumers may select a service provider, but they may also choose whether they would like to have their services personalised in the future. The analysis of the data requirement of service providers and their pricing strategies shows that different data requirements serve as a differentiation device by which the providers may alter their prices/offerings.

o       A simplified version of the model was implemented in the laboratory in order to better understand how consumers make choices on the basis of the above-mentioned criteria. With 443 participants, the experiment is the largest laboratory experiment in the field of privacy economics to date. Different scenarios were implemented (so-called treatments), where participants were faced with two different service providers offering cinema tickets. The majority of participants who purchased two tickets in the laboratory experiment remained loyal to the service provider used for the first purchase (142 of 152 participants).

o       The laboratory experiment also shows that the majority of consumers buy from a more privacy-invasive provider if the service provider charges a lower price. A non-negligible proportion of the experiment’s participants (13–83%), however, chose to pay a ‘premium’ for privacy. They did so in order to avoid disclosure of more personal data or because the privacy-friendly service provider promised not to use their data for marketing purposes.

o       The laboratory experiment was complemented by a hybrid and field experiment with over 2,300 participants and 139 transactions and observations. The field experiment confirmed the trends observed in the laboratory; the only difference noticed is that in case of no price difference the privacy-friendly service providers which request less personal data obtained a greater market share.

o       The report concludes with recommendations derived from this study. Users should be provided with options that allow them to disclose less personal data. Since such differentiation might lead to higher service prices, the EU regulatory framework should be sufficiently flexible to allow differentiation between service providers, enabling comparison of prices and requiring market players to offer privacy-friendly services.

o       In the future, easy-to-understand comparison of the data protection practices of service providers will become more important. Only if information practices (i.e. the collection and use of personal data) are more easily comparable will they play a useful role in the consumer’s decisions.

Finally, portability of profiles for consumers will reduce potential switching costs which may arise if consumers choose to personalise their product at a particular service provider. Such profile portability should be conditioned on the consent of the consumer.