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Keywords:

Social Sciences, Economics, Business & Economics, 3RD-DEGREE PRICE-DISCRIMINATION, CUSTOMER RECOGNITION, FREE-ENTRY, PRIVACY, COMPETITION, INFORMATION, OLIGOPOLY, BEHAVIOR, MARKETS, 1401 Economic Theory, Economic Theory, 3801 Applied economics, 3803 Economic theory

Abstract:

We offer a social-welfare comparison of the two most prominent default options - opt in and opt out - using a two-period model of localized competition. We demonstrate thatwhen consumers stick to the default option, the prevailing default policy shapes firms' ability to collect and use customer information, and affects their pricing strategy and entry decision differently.The free-entry analysis reveals that fewer firms enter under opt out as competition becomes harsher, and that opt out is the socially preferred default option. © 2013 Mohr Siebeck.