The Supply and Demand for Data Privacy: Evidence from Mobile Apps

Résumé

Since December 2020, Apple has required all apps to disclose their data collection practices by filling out privacy “nutrition” labels that are standardized and easy-to-read. We web-scrape these privacy labels and first document the following stylized facts regarding the supply of privacy: (i) 80% of the data collected are used for purposes unrelated to app functionality; (ii) top data collectors tend to be developed by public firms and enjoy a larger market share and better ratings; (iii) games, news, shopping, and entertainment apps collect more data for advertising and marketing purposes. Second, augmenting privacy labels with weekly app downloads and revenues, we study how consumers react to the disclosure of data collection practices. We exploit the staggered release of privacy labels and use the nonexposed Android version of each app to construct the counterfactual. After privacy label release, an average iOS app experiences a 12-15% drop in weekly downloads and revenues when compared to its Android counterpart, with an even stronger effect for more privacy-invasive and substitutable apps. Consumers in the US, UK, and Canada respond more negatively, suggesting that they are most averse to data collection. We also observe adverse stock market reactions, especially among firms that harvest more data. Our findings highlight the lack of consumer awareness of firms’ data collection practices as a key barrier to privacy protection.