The Pricing of Individual and Aggregate Consumer Information in Todayís Marketplace

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Abstract

Privacy and the demand for consumer information are topics that are increasingly important with the advent of the online marketplace. The transactions and behaviors of consumers online can now easily be monitored electronically through cookies or spyware. The intersection between information security and social sciences has now been brought into focus because purely technical solutions have failed to solve the privacy issue. Consumers may be poorly motivated to protect their information if they only consider its low marginal value to themselves instead of the cumulative value it presents to companies.

Consumers regularly make trade-offs between privacy and a host of incentives such as freeware, price discounts, reward points, sample products and more. These are essentially economic transactions involving the trading of information. Companies highly value aggregate consumer data in order to execute behavioral targeting and price discrimination campaigns. The ability to segment their customers and charge personal prices enables companies to extract the maximum value along the entire frontier of the customer demand curve

The goal of the project is to determine how the price of consumer information changes for a firm depending on the amount of data collected. The outcome of this project then gives us a starting point to think about a firmís incentive behind collecting more data. Our project is based on a database of 100,000 customer summary records from a major wireless service provider, which includes customer demographic data, call behavior characteristics and total revenue. In the competitive world of wireless telecommunications, customer churn is a huge problem faced by service providers. And in order to combat churn, the first most important step is to predict which customers are likely to leave, and customer information is the most vital element in doing so. Because of the importance of customer data, the trend of accumulating more information about people, and creating a detailed picture of an individualís behavior, is well illustrated in the field of wireless telecommunications.





Kaira Daphne Gui & Tania Mohd Nor
Faculty Advisor: Jonathan M. Smith