Screening and Transparency in Markets with Price Commitments

Faculty Development Competitive Research Grant Program 2019-2021

Information about prospective customers is important in many markets. Banks and other loan providers collect credit scores, employment and income history of loan applicants. Health insurance companies are interested in pre-existing conditions and lifestyle of their future clients. Even landlords would like to know more about the personalities of their prospective tenants†. Customer information helps these companies to decide whether to proceed with transaction or not. Indeed, mortgage and health insurance applications are routinely denied‡, while Edelman et al 2017 report that hosts on online home sharing platform Airbnb reject guests up to 50% of the time. However, the collection and use of information by firms is a subject of an ongoing debate, as is evident by the adoption of the General Data Protection Regulation in the EU and the recent controversy surrounding Facebook data management practices. This project contributes to the debate by investigating the role of privacy protection in a specific context of markets with price commitments and screening. In particular, those markets where firms post prices (interest rates, insurance premiums etc) and, when customers arrive, decide to trade with them or not at the posted prices. As mentioned before, the examples include markets for consumer credit cards and mortgages, insurance, and private apartment rentals.