BERKELEY ECONOMIC REVIEW
Regulation (GDPR)4, the binding law across European Union and European Economic Area, consumer consent is required for firms to process personal data, and consumers can ‘opt out’ of the agreement anytime by discretion. Scholars in legal studies commonly agree that GDPR applies to personalised pricing in general and cookies with unique identifiers should be regarded as personal data(Borgesius and Poort, 2017[bor‐ gesius2017online]; Steppe, 2017[steppe2017online]). Therefore, consumers are legally granted more power for them to play a more important role in the game of personalisation. Some studies incorporate the strategic behaviours of consumers for example by delaying consumption in the early period to gain an advantage in the future (Chen and Zhang, 2009[chen2009dynamic]). The ability to opt out of personalisation programmes should have more robust implications, which is the prime motivation of this research.
3
The Model
3.1
The Set-up
Here we construct a duopoly model with two multi-product firms which set price and quality to compete. The model is based on the framework of Ghose et. al.(2009) (henceforth G09) where each firm’s product line consists of a continuum of qualities and is fixed in length. Consumers types are denoted as θ where θ E [0, 1] with uniform distribution. This draws the uniqueness of G09 as θ represents both the brand preference and the marginal valuation of quality. This setup implicitly assumes that consumers with stronger brand preference (located closer to the end) would derive a higher utility from an increase in quality supplied by the preferred firm and, hence would have a higher willingness to pay (WTP) for the quality supplied. The interpretation provides a nice way around the dichotomy in horizontal and vertical product differentiation and is well supported by empirical studies. G09 gave an example in the automobile industry: consumers who prefer brands specialised in highly fuel-efficient vehicles 4
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