Online privacy and market structure: Theory and evidence

This paper investigates how privacy regulation affects the structure of online markets. We empirically analyse the effects of the 2009 ePrivacy Directive in Europe on firm revenues. Our results indicate that, if any, only large firms were weakly negatively affected by the implementation of the Directive. We also provide a simple theoretical model predicting an avenue how privacy regulation may predominantly influence the revenues and profits of larger firms, even if - as some of our evidence indicates - these larger firms may actually offer more privacy than smaller rivals. Our results suggest that while privacy regulation is not without costs to businesses, it need not distort competition to the favour of larger firms.