Law, Economics, and Privacy: Implications of Government Policies on Website and Third-Party Information Sharing.

This article analyzes the effects of two government-enforced data-protection policies—consent-based user information sharing (as exemplified by the European Union's General Data Protection Regulation and California's Consumer Privacy Act) and website subsidization of privacy-conscious sites—on websites, users, and third-party data sharing. Using an analytical model and empirical data from the CCPA rollout, the study finds that while consent-based policies can increase user surplus by lowering prices, they may unintentionally raise the number of third-parties involved in data sharing and reduce market competition by driving websites out of the market, thereby harming social welfare. Website subsidization policies offer a more targeted approach that can improve user surplus in specific markets but may also affect competition depending on the subsidized site's quality. The findings suggest that policy makers should carefully consider these trade-offs and potentially combine regulatory and nonregulatory mechanisms to better protect online privacy without undermining market dynamics.