Online information privacy and price: A theoretical model and empirical tests

Information privacy has become an increasingly critical concern for many individuals, especially in the context of the increased collection, analysis, and visualization of personal information. Despite the importance of privacy in online transactions, most studies investigated the effects of privacy concerns on stated intentions. This study theoretically analyzes and empirically evaluates the link between privacy and price. In the proposed model, consumers are differentiated not only by their preferences for privacy but also by search costs. For simplicity, stores in the proposed model differ in terms of the price charged and the privacy protection level offered. As derived from the theoretical model and empirical validation, better privacy protection does not necessarily lead to the highest price, though it does allow stores to charge a premium price. Moreover, the price premium is higher if more consumers remain uninformed, indicating that uninformed consumers exert negative impacts on informed consumers.