Advertising strategies of competing firms considering consumer privacy concerns

Abstract

Targeted advertising based on consumers' purchase history is the most prevalent choice for firms; however, its effectiveness is affected by an increase in consumer privacy concerns. We established a two-period game model to analyze firms' equilibrium advertising strategies, pricing strategies, and profits when a segment of consumers is unwilling to provide their purchase information owing to privacy concerns.Based on the equilibrium results, some valuable managerial insights are suggested for competing firms. Firms should consider the proportion of privacy-sensitive consumers and advertising costs when developing advertising strategies. Targeted advertising is not an optimal choice invariably.

Digital firm regulation strategy with privacy data protection costs

“…For example, Song and Cheng (2023) develop a nonlinear constrained optimization model to investigate the retailers' optimal gains and pricing and discuss the influence of item privacy attributes and users' profit-seeking or strategic behavior. Shen et al (2023) construct a two-period game model to explore firms' equilibrium advertising strategies, pricing strategies, and profits when a segment of users is unwilling to provide their purchase information owing to privacy concerns.…”

Does competition increase advertising?

“…10 10 Other recent theoretical studies in the literature examine advertising strategies of firms in different types of competitive environment; see, e.g., (Brahim et al, 2011; Bergemann & Bonatti, 2011; Schroeder et al, 2021; Wang et al, 2022; Yue et al, 2023). But keep in mind that these studies are not directly related to ours because in our model, there is only one firm that can be producing high‐quality or low‐quality products.…”