Consumer Purchase Journey, Ad Wearout, and Privacy Choices

Advertising to a consumer moves her further along the purchase journey, and tracking the consumer's online activities enables the advertiser to infer her purchase journey stage and target her accordingly. However, many consumers dislike being tracked, and repeated advertising leads to ad wearout. Under these considerations, we investigate the impact of regulations that endow a consumer with the choice to opt in to have her activity be tracked or opt out of tracking. A consumer's opt-in decision balances two aspects of privacy: its intrinsic value (protect privacy for its own sake) and its instrumental value (compromise privacy if doing so leads to utility-enhancing outcomes). Consumers opt in or out of tracking under different conditions. For instance, when ad effectiveness is intermediate, such that repeated ads would be useful for the advertiser, consumers opt in. This is because tracking reveals the consumer's purchase journey stage, which increases advertising efficiency and thus reduces ad repetition than if the consumer had opted out. Due to the opt-in/-out choice, and compared to the pre-regulation benchmark of consumer data being tracked, consumer surplus weakly increases and the advertiser's and the ad network's profits weakly decrease. Interestingly, the advertiser's and the ad network's profits may decrease in ad effectiveness.