The Impact of Privacy Measures on Online Advertising Markets

Abstract

Privacy regulations in online markets have ramped up in recent years, as typified by government regulation, such as the California Consumer Privacy Act (CCPA) of 2020, which allowed internet users in California to “opt-out” of behavioral tracking; as well as firm-level initiatives such as the banning of third-party cookies by major internet browsers, including Apple’s Safari and (in 2022) Google’s Chrome. Using fine-grained data from Yahoo, we estimate a structural model of bidding among Demand-Side Plat- forms (DSPs) for different types of users. Using the estimates, we simulate the counterfactual effects of expanding privacy regulations, in particular banning third-party cookies by browsers. While, as expected, such a ban would reduce publisher revenue substantially, by around 30%, it also shifts business to larger DSPs. In addition, we also consider the scenario where, in the aforementioned ban, there exists an advantaged DSP which possesses proprietary first-party information on users.