Article

Privacy Regulation and Quality-Enhancing Innovation

Yassine Lefouili, Leonardo Madio, and Ying Lei Toh

Abstract

We analyze how a privacy regulation taking the form of a cap on information disclosure affects quality-enhancing innovation incentives by a monopolist--who derives revenues solely from disclosing user data to third parties--and consumer surplus. If the share of privacy-concerned users is sufficiently small, privacy regulation has a negative effect on innovation and may harm users. However, if the share of privacy-concerned users is sufficiently large, privacy regulation has a positive effect on innovation. In this case, there is no trade-off between privacy and innovation and users always benefit from privacy regulation.

Keywords

Privacy Regulation; Data Disclosure; Innovation;

JEL codes

  • D83: Search • Learning • Information and Knowledge • Communication • Belief
  • L15: Information and Product Quality • Standardization and Compatibility
  • L51: Economics of Regulation

Replaces

Yassine Lefouili, Leonardo Madio, and Ying Lei Toh, Privacy Regulation and Quality-Enhancing Innovation, TSE Working Paper, n. 17-795, April 2017, revised July 2023.

Reference

Yassine Lefouili, Leonardo Madio, and Ying Lei Toh, Privacy Regulation and Quality-Enhancing Innovation, The Journal of Industrial Economics, vol. 72, n. 2, June 2024, pp. 662–684.

Published in

The Journal of Industrial Economics, vol. 72, n. 2, June 2024, pp. 662–684