Behind Privacy Labels : Data Tracking and Advertising Competition on App Platforms

Recently, a controversial new privacy policy on the mobile app platform, which requires app developers to display privacy labels and request data-tracking permissions from users, has sparked a heated discussion among practitioners in digital advertising. In this paper, we build a game-theoretic model to examine how this new policy impacts all key stakeholders involved (i.e., app developers, the platform, and consumers). We find that the platform can be worse off adopting the new policy, especially when the in-app ad is significantly more important than the platform ad to consumer conversion. Moreover, we find that although the app prices increase, the app developers are always worse off when the policy is implemented. Another interesting finding is that consumers are not always better off under this new policy, which is supposed to protect their privacy. Furthermore, as consumers’ unit misfit cost increases, the developers may sometimes be better off lowering their prices to achieve greater demand, leading to an increase in the advertising-based revenue; however, when the new policy is implemented, the app price decreases at a lower rate. Moreover, with the implementation of this new policy, the optimal commission rate charged by the platform decreases to a lower extent as the ad impression displayed in the app becomes more important to consumer conversion. Our paper provides meaningful implications for all key stakeholders of mobile app platforms regarding the implementation of the new privacy policy