Privacy Regulation and Online Advertising

Privacy and Security, Internet and Search and Advertising

Article Snapshot

Author(s)

Avi Goldfarb and Catherine Tucker

Source

Management Science, Vol. 57, No. 1, pp. 57-71, 2011

Summary

This paper examines how privacy regulations affect the effectiveness of online advertisements.

Policy Relevance

Privacy regulations that prevent data tracking render advertisements less effective, and may lead to reduced availability of ad-supported content and more-intrusive advertisements.

Main Points

  • Websites use data collected from consumers who browse their sites to target advertisements.
     
  • Governments around the world are considering legal restrictions on the collection and use of consumer data by firms.
     
  • European privacy laws preventing ad targeting have led advertisements to become 65% less effective at convincing viewers to purchase products.
     
    • Over the same period, non-European countries saw no reduction in advertisement effectiveness.
       
  • The loss of advertisement effectiveness was largest on general interest web sites like news distributors. Special interest web sites, like pet supply stores, saw a smaller loss because simply by visiting a niche site consumers had provided information about their interests.
     
  • Banner ads were more adversely affected than larger, more-intrusive advertisements because they rely on attracting consumer attention by virtue of their relevance.
     
  • The enactment of privacy laws may be expected to result in more intrusive advertisements and the loss of some web sites providing content of general interest.
     

 

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