Regulating Personalized Pricing: A Welfare Analysis Across Different Market Structures

Abstract

This paper analyzes how two regulatory mechanisms- opt-out and sensitive data restriction- affect consumer surplus, producer surplus, and total surplus under monopoly, differentiated Bertrand competition, and monopolistic competition. The analysis shows that welfare effects depend on market structure and on how regulation affects firms' pricing precision and consumers' participation. Under an opt-out mechanism, consumer surplus may increase as the opt-out rate increases, while it may generate deadweight loss at the same time. Sensitive data restriction reduces the accuracy of personalized pricing. It may improve fairness, but it can also cause consumers to face prices higher than their highest willingness to pay and leave the market. In more competitive markets, the effects on consumer and producer surplus are dependent, as competition already constrains market power. This paper also considers practical limitations, including the default effect and proxy variables. Finally, this paper argues that regulatory choice should depend on the market context: sensitive data restriction may be more suitable for markets relating to fundamental rights, while opt-out may be more suitable in general markets. Unlike studies that examine consumer choice rights and data-use restrictions separately, this paper places both regulatory tools within a uniform welfare framework and compares their effects across different market structures.