Collusion and Data Privacy

Abstract

In certain situations where a firm has an interest in privacy, external parties can be in a position to collude with each other in a manner that violates the firm's privacy. These external parties often have a monetary incentive to collude against the firm. The threat of collusion is discussed within the context of a simple economic model. Although a simple reward scheme can be used to deter collusion, a deterrent based on a long-term business relationship is more effective. An optimal collusion-resistant mechanism is designed with which the firm can filter out parties with low discount factors.