Transcript slides - Privacy Enhancing Technologies Symposium (PETS)

Institute for System Architecture
Dresden, Germany
Economics of Identity
Management:
A Supply-side Perspective
Workshop on Privacy Enhancing Technologies
Dubrovnik (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
Overview
Supply-side Perspective
Why support an Identity
Management System (IMS)
Analysis
Economic tradeoff
Comparison of different models
Scenario
Conclusion & Future Work
TU Dresden, Sven Koble & Rainer Böhme
Economics of Identity Management: A Supply-side Perspective
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Motivation
Why do vendors
store privacy sensitive data ?
20000 €
Vendor
Knowledge
about the
customer
or
16000 €
Direct
marketing
TU Dresden, Sven Koble & Rainer Böhme
Price discrimination
Economics of Identity Management: A Supply-side Perspective
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Motivation
Why is protection of
customers privacy important ?
U.S. National Online Survey of 2136 adults
Online retail sale - lost retail sale U.S. in $Billion
45
40
40
35
30
35%
25
20
18
20
15
10
65%
5
2,8
0
1999
2002 (forcast)
retail sale
65% declined to register
at an e-commerce site:
Doubts about company‘s
privacy protections
lost retail sale
Estimated loss of sale,
because of missing
privacy protection in the
U.S. 2002:
$18 Billion
Harris Poll June 2004
TU Dresden, Sven Koble & Rainer Böhme
FTC 2000 Report to the U.S. Congress
Economics of Identity Management: A Supply-side Perspective
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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
TU Dresden, Sven Koble & Rainer Böhme
Economics of Identity Management: A Supply-side Perspective
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Basics - Model
All Customers
f=
without
with
privacy awareness
 Assumptions:
without IMS
demand
Maximise revenue
TU Dresden, Sven Koble & Rainer Böhme
use of an IMS
Economics of Identity Management: A Supply-side Perspective
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Models
 Perfect price discrimination
50 €
 Baseline model
25 €
70 €
 Customer groups
realistic
 One purchase period
purchase
 Customer behaviour
 Two purchase periods
not
purchase
t1
TU Dresden, Sven Koble & Rainer Böhme
Economics of Identity Management: A Supply-side Perspective
t2
7
Model – One Purchase Period
without IMS
Price
with IMS
Demand
A
Price
C B
Quantity
A
D
C B F E
Quantity
Revenue R
R = A + C + D + F high price
R=A+B+C
R = C + F + B + E low price
Benefit > Cost
Case 1 high price
D+F>B
yielding to
Case 2 low price
two inequation
including the factor f
E+F>A
TU Dresden, Sven Koble & Rainer Böhme
Economics of Identity Management: A Supply-side Perspective
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Model – One Purchase Period
Intersection point
gives max. value for f
A + D > B + E  Case 1
Price
Price
A + D < B + E  Case 2
A D
A
D
C F B E
Quantity
Max. value of f is root of a quadratic equation
 Upper bound f = 1
TU Dresden, Sven Koble & Rainer Böhme
Economics of Identity Management: A Supply-side Perspective
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Models
 Perfect price
discrimination
50 €
25 €
70 €
 Baseline model
bound for
worst case:
double
demand
 Customer groups
 One purchase
period
purchase
 Customer behaviour
 Two purchase
periods
not
purchase
t1
TU Dresden, Sven Koble & Rainer Böhme
in any case:
double
demand
required
t2
bound for
worst case:
increase
demand by
50%
Economics of Identity Management: A Supply-side Perspective
10
Scenario - One Purchase Period
Publisher
without
IMS
6400 €
Price depends on
residence of the customer
20 €
each
320
400
80
Monopoly for
scientific journal
f > 6.25%
5€
each
π = 0.8
6800 €
400 €
α=4
 Introduction of an IMS profitable if
demand increases by more than 6.25%
25
6800 €
with
IMS
425
340
20 €
each
π = 0.8
TU Dresden, Sven Koble & Rainer Böhme
Economics of Identity Management: A Supply-side Perspective
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Future Work
 Monopolist
Competitive market
20000 €
 Allow arbitrage
16000 €
 More empirical
data
TU Dresden, Sven Koble & Rainer Böhme
18000 €
Take other functions
of an IMS into account
Economics of Identity Management: A Supply-side Perspective
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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
TU Dresden, Sven Koble & Rainer Böhme
Economics of Identity Management: A Supply-side Perspective
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Thank you for your
attention 
E-mail: [email protected]
TU Dresden, Sven Koble & Rainer Böhme
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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)
TU Dresden, Sven Koble & Rainer Böhme
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