Privacy Regulation, Cognitive Ability, and Stability of Collusion

This private cost of privacy protection can be thought of as efforts or payments that consumers need to make for privacy protection.6 The higher the private cost of privacy protection, lower is the effectiveness of the privacy regulation. [...] Third, if consumers’ cognitive ability is constrained, stability of tacit collusion increases with the effectiveness of the narrow scope privacy regulation, as in the case of the broad scope privacy regulation. [...] On the other hand, effectiveness of privacy regulation refers to the extent of consumers’ easiness to protect their privacy, given the scope of the regulation. [...] In Section 4, we examine the impact of effectiveness of privacy regulation under narrow scope of privacy regulation, and draw the implication of the scope of privacy regulation by comparing the results under broad scope of privacy regulation with those under narrow scope of privacy regulation. [...] Although the mechanism driving consumers’ privacy choices and the equilibrium in the case of collusion under narrow scope privacy regulation is different from those under broad scope privacy regulation, the equilibrium outcomes in terms of prices and profits under nar- row scope privacy regulation are the same as that in the case of prohibitive privacy cost under broad scope privacy regulation.