We analyse a subscription platform that commits to capacity, bargains bilaterally with subscribers over data provision or paid privacy, and then charges a market-clearing access fee. Because failed negotiations can be replaced by other subscribers, the platform’s capacity commitment (and the resulting subscriber base) determines the size of the replacement pool and hence bargaining power. Under opt-in (the platform buys data), capacity tends to expand to depress data payments; under opt-out (users buy privacy), capacity tends to contract to raise privacy charges. Privacy prices internalise the opportunity cost of foregone data. Journal of Economic Literature . • Platform capacity commitment shapes bargaining power via the replacement pool. • Opt-in expands capacity to depress data payments to users. • Opt-out restricts capacity to raise privacy charges from users. • Privacy prices internalise the platform’s opportunity cost of foregone data. • Consumer surplus ranking across regimes is parameter-dependent.
Joshua S. Gans (Tue,) studied this question.