The Intended and Unintended Consequences of Privacy Regulation for Consumer Marketing: A Marketing Science Institute Report

May 1, 2024

What to Consider Before Finalizing the American Privacy Rights Act

The Washington Post Editorial Board celebrates a new bipartisan bill, the American Privacy Rights Act, that promises to unify a patchwork of state regulations (Opinion: Congress might upend how online privacy works. Finally. April 23, 2025).

Our message is to get the details right before passage. The Post reports that the bill creates a national standard “as tough as, if not tougher than, what states have mustered so far.”  Various state bills are modeled on the European General Date Protection Regulation (GDPR). Public discourse has ignored a growing academic literature weighing the intended versus unintended effects of privacy regulation on marketing and consumers.

The nonprofit Marketing Science Institute just released its report summarizing what that work shows about key tradeoffs that were not front-and-center in the public-facing communications from the drafters of GDPR. We coauthored this report with eight leading academic experts on the economics of privacy.

First, there is a tradeoff between the privacy and usefulness of information exchanges for firms and consumers. The 2006 book The Long Tail described how digital marketing changed our economy from a market for hits to a market serving many smaller niches of consumers with diverse needs and tastes. Digital marketing makes it possible for small entrepreneurs and consumers with non-mainstream needs and tastes to find each other.

Second, there is a tradeoff between privacy and fairness. Just as consumers differ in their needs for products, they differ in whether, when, and why they are willing to share data. Research shows that those most keen to minimize data sharing are richer, more educated, and older than those who are less keen.  The goal of privacy regulation should be to give consumers control of their data rather than to slow the flow of data.

Lower quality personalization can exclude marginalized consumer segments. Some lower income consumers and certain ethnic segments live in digital data deserts. The problem is not that firms know too much about them. It is that firms know so little that they may unknowingly exclude these segments from the digital economy. In practice, firms only spend to advertise to a consumer if the firm can predict with reasonable confidence that they will make money doing so. Privacy can be in some sense a problem of the privileged.

Third, there is a tradeoff of privacy and freedom from discrimination, particularly against marginalized groups. Even when discrimination is unintended, algorithms can discriminate to exclude certain groups from the marketplace, as in a study showing that women were less likely than men to be served ads for job opportunities in STEM careers.

Regulators have prescribed that firms should limit the data they collect only to what is reasonable and necessary, minimizing information about race, gender, or other protected class attributes. But without that information, it becomes challenging for regulators and firms to audit data-based marketing algorithms for unintended discrimination and differential treatment.

Finally, there is a tradeoff between privacy and competition and innovation by sellers in the marketplace. Many small brands exist because digital marketing allows them to create sustainable businesses at a small scale without giant media budgets. These span categories such as nonalcoholic cocktails or travel hair and skin care products for Black female travelers who find hotel-provided options inadequate. Small brands benefit more from accurate targeting than the big brands with broader appeal. Privacy laws that limit or ban behavioral data-based marketing may stifle the recent flood of innovative new direct-to-consumer products.

A growing number of studies show that privacy regulations may slow innovation and reduce the competitiveness of markets. This is especially detrimental to those same small businesses and entrepreneurs that benefit most from accurate targeting of diverse consumers.

Recent, rapid advances in so-called Privacy Enhancing Technologies may avoid reliance on individual consumer data. New evidence shows these PETs reduce some of the documented costs of privacy policies to consumers and firms; but concerns remain that these technologies may advantage larger firms who can afford to implement them at scale.

The same day that the Post celebrated this forthcoming US bill, Google announced delays in its plans to phase out third party cookies that track consumers’ browsing behaviors across sites. The pause was in response to the UK’s Competition and Markets Authority asking for more evidence that competition would not be harmed by the phase-out of cookies and that the new tools in Google’s Privacy Sandbox would not deter competition.  Before finalizing any national bill, Congress should talk with those regulators.

There is clear value in the bill being crafted in Congress to protect consumers’ right to privacy. But the framers of the bill should consider carefully the tradeoffs discussed above before finalizing their work.

Jean-Pierre Dubé, University of Chicago

John G. Lynch, University of Colorado-Boulder & Marketing Science Institute*