Conditioning Prices on Purchase History
Marketing Science
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As more organizations and individuals move on-line, concerns for privacy and security of personal information grow and new trade-offs arise. Is there a combination of economic incentives and technological solutions to privacy issues that is acceptable for the individual and beneficial to society? Is there a “sweet spot” that satisfies the interests of all parties? This dissertation combines technological and economic analysis to answer these questions. It introduces some of the most challenging technological and economic issues in the debate on privacy of personal information. It proposes cryptographic protocols to protect the privacy and anonymity of individuals in environments such as elections, payments, and recommendation systems. It then highlights novel economic aspects of the use of tracking and privacy-enhancing technologies. On the technological side, the dissertation presents a novel method to protect the privacy of individuals through the coordination among parties that do not know each other. In this method, privacy is protected through anonymity, by hiding the identity of an individual completing a certain transaction amidst the identities of many other individuals completing similar transactions. These transactions are completed through a third party that does not need to be trusted. While several applications of this method are possible, this dissertation discusses its embodiment as an anonymous payment system and as an electronic voting and recommendation system. As a payment system, the method allows anonymous payments to be completed while guaranteeing the atomicity of the transaction. As a voting system, the method allows write-in ballots to be receipt-free and universally verifiable. On the economic side, the dissertation analyzes costs and incentives for buyers and sellers to share or hide information about previous transactions. It studies under which conditions it is optimal for sellers to use customer histories for price discrimination. It discusses customers' costs to preserve anonymity or maintain accounts with merchants. It then investigates what incentives induce merchants to use information from previous purchases to profile customers and offer them new goods to try out. Finally, the dissertation combines the technological and economic arguments to discuss what technology and economics can and cannot do to protect individual privacy in the information society. (Abstract shortened by UMI.)