On the Implications of Cost of Anonymity in Advertising Financed Two-Sided Markets

Journal Name:  Oxford Economic Papers

Abstract: This article examines a two-sided market structure in which a monopoly platform offers a service for free to users, while generating revenue from advertisers. Users can either opt-in (share their data) or opt-out (remain anonymous) at an exogenous cost. We show that equilibrium advertising level (weakly) increases with a decrease in the cost of staying anonymous. Also, a decrease in the cost of anonymity can generate asymmetric welfare effects in markets with a small to intermediate cost of anonymity, with users becoming worse off and advertisers benefiting. Finally, platform profit increases as the cost of anonymity decreases.