Economics of Identity Management: A Supplyside Perspective

1
Economics of Identity Management A Supply-side
Perspective
Institute for System Architecture Dresden, Germany
Workshop on Privacy Enhancing Technologies Dubrovn
ik (Cavtat), Croatia 30 May 1 June 2005
Sven Koble Rainer Böhme
Kindly supported by FIDIS (Future of Identity in
the Information Society) and the Workshop on
Privacy Enhancing Technologies 2005
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Overview

• Supply-side Perspective
• Why support an Identity Management System (IMS)
• Analysis
• Economic tradeoff
• Comparison of different models
• Scenario
• Conclusion Future Work

3
Motivation

• Why do vendors
• store privacy sensitive data ?

20000
Vendor
Knowledge about the customer
or
16000
Direct marketing
Price discrimination
4
Motivation

• Why is protection of
• customers privacy important ?

65 declined to register at an e-commerce site
Estimated loss of sale, because of missing
privacy protection in the U.S. 2002 18 Billion
Doubts about companys privacy protections
Harris Poll June 2004
FTC 2000 Report to the U.S. Congress
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Basics - IMS

• IMS functions
• Manage own personal data
• Different situation different identities
• Logging
• Accountability relative to pseudonyms

Source Sebastian Clauß and Thomas Kriegelstein
http//drim.inf.tu-dresden.de/index.en.html

• Important Linking impossible
• Between pseudonym personal data
• No purchase history
• Vendor has to decide
• Support an IMS, or keep processing customer data

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Basics - Model

• All Customers

without
with
privacy awareness

• Assumptions

without IMS
demand
use of an IMS
Maximise revenue
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Models

• Perfect price discrimination
• Baseline model
• Customer groups
• One purchase period
• Customer behaviour
• Two purchase periods

realistic
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Model One Purchase Period
without IMS
with IMS
Demand
Revenue R
R A B C
Benefit gt Cost
Case 1
Case 2
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Model One Purchase Period
Intersection point gives max. value for f
A D gt B E ? Case 1
A D lt B E ? Case 2
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Models
in any case double demand required

• Perfect price discrimination
• Baseline model
• Customer groups
• One purchase period
• Customer behaviour
• Two purchase periods

bound for worst case double demand
bound for worst case increase demand by 50
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Scenario - One Purchase Period
Price depends on residence of the customer
Publisher
without IMS
Monopoly for scientific journal
p 0.8
f gt 6.25 ? Introduction of an IMS profitable
if demand increases by more than 6.25
25
6800
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Future Work

• Monopolist

Competitive market
20000

• Allow arbitrage

18000
16000

• More empirical data

• Take other functions of an IMS into account

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Conclusion

• Given privacy aware customers, the introduction
  of an IMS might be rewarded with higher demand
• Factor f definded to quantify additional demand
• Valueable information for developers of IMS about
  potential early-adaptors
• The success of privacy-enhancing Identity
  Management Systems is not only determined by
  technical but also by economic conditions

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Thank you for your attention ?
E-mail Sven.Koble_at_inf.tu-dresden.de
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References

• Acquisti, A., Varian, H. Conditioning Prices on
  Purchase History. (2001)
• Gellman, R. Privacy, Consumers, and Costs How
  the lack of privacy costs consumers and why
  business studies of privacy costs are biased and
  incomplete, (2002)
• Odlyzko, A. Privacy, Economics, and Price
  Discrimination on the Internet. In Fifth
  International Conference on Electronic Commerce,
  ACM (2003)
• Privacy and Identity Management for Europe
  (PRIME) http//www.prime-project.eu.org/
• Shapiro, C. and Varian, H. Information Rules A
  Strategic Guide to the Network Economy. Harvard
  Business School Press (1998)
• Taylor, C. R. Private Demands and Demands for
  Privacy Dynamic Pricing and the Market for
  Customer Information. Department of Economics,
  Duke University, Duke Economics Working Paper
  02-02 (2002)