hero working papers

Hypertargeting, Limited Attention, and Privacy: Implications for Marketing and Campaigning

Number: 479
Year: 2013
Author(s): Florian Hoffmann, Roman Inderst and Marco Ottaviani
Using personal data collected on the internet, firms and political campaigners are able to tailor their communication to the preferences and orientations of individual consumers and voters, a practice known as hypertargeting. This paper models hypertargeting as selective disclosure of information to an audience with limited attention. We characterize the private incentives and the welfare impact of hypertargeting depending on the wariness of the audience, on the intensity of competition, and on the feasibility of price discrimination. We show that policy intervention that bans the collection of personally identifiable data (for example, through stricter privacy laws requiring user consent) is beneficial when consumers are naive, competition is limited, and firms are able to price discriminate. Otherwise, privacy regulation often backfires.

Keywords: Hypertargeting, selective disclosure, limited attention, consumer privacy regulation, personalized pricing, competition
JEL codes: D83 (Search; Learning; Information and Knowledge; Communication; Belief), M31 (Marketing), M38 (Government Policy and Regulation)