How Control Of Consumer-Generated Data Affects Online Advertising

Professors at Cornell University examined how policies for the ownership and control of consumer-generated data affect market outcomes in the online advertising industry, especially with regard to consumer purchase interests. They found that it creates competition between ad exchanges, which leads to too little sharing of data between advertisers. 

The paper also shows that advertisers can be harmed by the limited information that is shared in a situation called a “prisoner’s dilemma,” defined by Wikipedia as “a standard example of a game analyzed in game theory that shows why two completely rational individuals might not cooperate, even if it appears that it is in their best interests to do so.”

Cornell University professors Justin Johnson and Thomas Jungbauer, along with assistant professor Marcel Preuss were motivated to write the paper by ongoing changes such as the introduction of the consumer privacy-rights legislation General Data Protection Regulation (GDPR) in the European Union, the elimination of third-party tracking cookies by companies such as Apple and Google, and the introduction of new tracking technologies such as Federated Learning of Cohorts (FLoC) and Unified ID 2.0.

The research suggests that it harms consumers because they receive too few relevant ads.



Giving consumers rights over their own data can improve outcomes.

This means consumers choose to share data about their browsing history with ad exchanges. The research tries to make the case that consumer data rights, such as the right to not be tracked, can harm consumers because of the way ad exchanges respond.

Initiatives by Apple and Google to limit third-party tracking, and introduce alternative tracking systems such as FLoC, can benefit consumers by weakening the property rights of advertisers over consumer data. As it turns out, more data is shared by default under these systems even if they are less accurate than the third-party cookie system.

The analysis considers consumers who have recently taken an action indicating an intent to purchase in some product category.

For example, a consumer might have visited one or more advertiser websites and perused products sold there, according to the paper.

With the help of an ad exchange, an advertiser might re-target the consumer with an advertisement delivered on a separate publisher website that the consumer visits soon after. And then, of course, it might “nudge” the consumer into making a purchase.

Published in early August, the paper provides details and makes assumptions about sharing data and wasted impressions, detailing findings from multiple tests.

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