The Economic Implications of Privacy Dark Patterns

This study investigates the economic implications of privacy dark patterns (PDPs) through which firms “wisely” play privacy games. It is believed that PDPs advantage firms by deceiving consumers. However, it could also hinder firms’ credibility. Thus, we aim to examine whether PDPs always benefit firms and hurt consumers. We also seek to answer whether market forces are sufficient to keep PDPs at relatively low levels. Our results show that PDPs make users weakly worse off and the seller weakly better off. Nevertheless, the seller has incentives to not utilize any PDPs when users’ privacy cost is high, and the ratio of privacy concern and search cost is either too high or too low under which market shrinkage effect dominates market division effect. Finally, we show that a welfare maximizing social planner would allow the presence of PDPs when users’ privacy cost is sufficiently low.