Targeting, Advertising and Privacy

The recent advancements in information technologies have revolutionized the way firms interact with consumers and collect consumer information on a large scale.Traditional marketing methods have given way to more personalized and targeted approaches, enabled by the wealth of big data available from social media and other platforms. This surge in data collection allows businesses to gain deep insights into consumer behavior, enabling them to tailor their offerings and communication strategies more effectively. However, this data-driven revolution has raised concerns surrounding privacy and the protection of personal information. As a result, this thesis analyzes various perspectives – targeting, advertising and pricing – of firms in such markets and how different entities are affected by information acquisition and privacy regulations. Chapter 1 develops a general equilibrium model of informative advertising to examine the implications of privacy regulations on consumer welfare. Firms reach consumers by placing ads on an advertising platform. Privacy regulations affect ad targetability by either facilitating or hindering the identification of consumers’ preferences. We show that it is possible for some consumers to exhibit a preference for privacy purely for instrumental reasons simply because the presence of consumers with flexible preferences introduces the possibility of greater competition in the product market leading to lower prices and greater consumption for some or all consumers. The platform’s market power in the ad market and the possibility of such cross-selling in the product market—products intended for pickier consumers selling to consumers with flexible preferences under privacy—are critical factors. Chapter 2 studies the dynamic pricing strategies of firms while gradually collecting information about consumers with changing tastes. How should the firm personalize its offers and change them dynamically to learn as well as to adapt to changing tastes when it cannot commit to future behavior? I build a continuous-time bargaining model with one-sided incomplete information where a buyer’s binary type is publicly revealed through Brownian motion and the binary type changes via a Poisson process. Changing tastes benefits both types of consumers at a cost to the firm. If the firm is restricted to constant prices and can use the acquired information to select consumers, it is better off than under dynamic prices. The continuation bargaining process gets resolved slower under constant prices than under flexible prices, which makes consumers more willing to accept a given offer. Chapter 3 investigates the effect of a tailored news report and its targeted release by a politically biased firm on the equilibrium level of media bias with heterogeneous voters. Targeted media strategies include selective information disclosure and audience targeting. When the media firm cannot commit to either strategy, targeted media provides less media bias than traditional media. With full commitment, however, targeted media does not necessarily generate more media bias because selective audience targeting may be more effective in channeling the bias.

Keywords: advertising
information technology
personalization
pricing
privacy
targeting
Advisor: Shi, Xianwen
Moorthy, Sridhar