The welfare effect of personal data market regulation

We propose a simple model consisting of two separated markets: the market for good y and the market for good x. Purchasing information about consumer behavior in the former market helps the monopolist firm in the latter market to price-discriminate. Consumers differ in their income and in their level of myopia. Personal data market regulation could both increase consumers' awareness about the treatment of their data, and allow them to have their data erased from the data holder. We find that the former aspect of the policy reduces the number of transactions and hence tends to reduce total surplus while the second typically boosts willingness to pay of consumers and has positive effects on surplus, provided that the share of high-income consumers is not too high. More specifically, regulation benefits sophisticated consumers in the and harms low-income consumers in market $X$. The overall effect of regulation on total welfare depends on the share of high-income and myopic consumers.