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Customer Relationship Management

Notes Group, which issued a set of Principles for Providing and Using Personal Information. But that
report is virtually devoid of a discussion of a market mechanism in protecting privacy, or in
integrating such mechanisms in its privacy principles.

12.2.1 Markets in Privacy

The reflexive approaches to privacy problems have been regulation, or denial. Are there other
options?
First, there is the possibility of self-regulation, where an industry agrees to restrict some of its
practices. Realistically, though, self-regulation is rarely voluntary (unless serving an
anti-competitive purpose): it usually occurs only under the threat of state regulation, and it can
therefore be considered a variant of direct regulation.
The practice for the state to control and protect privacy is a natural response in the
telecommunications field, given its history as state-controlled monopoly. It has led to a view of
privacy problems largely as an issue of rights, and the question is how to create such rights in
the political, regulatory and legal sphere. Such a view is appropriate in the context of privacy
rights of the individual against the state. But the same cannot be said for the privacy claims of
individuals against other individuals. The allocation of rights is only the beginning of a much
more complex interaction. Some people may want and need more privacy than others. Privacy,
by definition, is an interaction in which the informational rights of different parties collide.
Different parties have different preferences on “information permeability” and need a way to
synchronize these preferences or be at tension with each other. This would suggest that interactive
negotiation over privacy would have a place in establishing and protecting privacy.
How should one analyze the role of bargaining over privacy? It is useful to consider as a
framework for discussion the economic theorem of Nobel laureate Ronald Coase, a Chicago
economist. Coase argues that in a conflict between the preferences of two people, the final
outcome will be determined by economic calculus and (assuming reasonably low transaction
costs) result in the same outcome regardless of the allocation of rights. If the final result is the
same, who then should have the rights? According to Coase, it should be the “least cost avoider,”
i.e. the party who can resolve the conflict at the lowest possible cost.
Let us apply this discussion to privacy, using the example of telemarketing. Both of the parties
to a telephone solicitation call attribute a certain utility to their preference. For example, it may
be worth US $3 to the telemarketer to have an opportunity to talk to the consumer. If necessary,
she would be willing to pay a potential customer up to that amount.
Conversely, assume that the consumer would be willing to pay – grudgingly for sure – up to
US $4 to the telemarketer to keep her off the phone. The US $4 is the value he places on his
privacy in this instance. Thus, if the telemarketer has a legal tight to call the consumer at home,
the latter would “bribe” her not to call in order to keep his peace and quiet.
The basic decision on regulatory rights is either to prohibit unsolicited telemarketing calls, or to
permit them. But regardless of which rule is adopted, the call will not take place, because under
our numerical example the value of privacy to the consumer is greater than its interruption is to
the telemarketer. But if for some reason the value to the telemarketer should rise, say to US $6,
the consumer could not pay her enough not to call; and conversely, if the telemarketer would
have no initial right to make unsolicited calls, she would pay for the consumer’s cooperation by
a payment of US $4 or more, so that the call is accepted.
In other words, the distribution of the legal rights involved may largely determine who has to
pay whom, not whether something will happen. Thus the law does not necessarily determine
whether telemarketing calls actually take place, it only affects the final wealth distribution. This
interactive concept is often difficult to grasp if one is used to think in absolutes of black-letter

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