Page 322 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Unit 12: Customer Privacy

12.2.3 Wireless Transmission Notes

Market forces may also be able to resolve the unauthorized eavesdropping of wireless
communication systems such as cellular and cordless telephones. True, such monitoring is
illegal for cellular calls (though not for cordless phones), but it is widely practiced by scanning
hobbyists as well as investigators. Just ask Prince Charles.
Eavesdropping is inefficient because it forces the participants in a communication to disguise
the content of their transmissions, or to seek other ways of communicating. Thus, there are
incentives for cellular service providers or equipment firms to offer scrambling devices.

Encryption systems require extra equipment and may increase the amount of spectrum required
for a given quality and information content of a signal. Customers who value privacy sufficiently
will be willing to pay for the increased resource cost.
12.2.4 Data Banks

Companies often sell or pass along information about their customers to others, for a variety of
purposes. Insurance companies want to know the accident and medical history of new applicants;
stores, whether new customers are credit-worthy; employers, whether job applicants have
criminal histories; doctors, whether a patient has brought a malpractice suit in the past; and
so on.
In America individuals, firms, and governments have a substantial right to collect and redistribute
personal and financial data about individuals. One could conceive of a market transaction system
by which consumers offer companies payments to delete such information or refrain from
distributing it. But could such a system work? In any transaction, both parties remain with
information about it. The problem is not usually that a party saves that information, but rather
that it disseminates it to others. The regulatory approach restricts some of these transfers. Could
a market work instead?
The answer is usually “no” today and only “maybe,” in the future.
The reason for this can be found in the logic of reselling information. In many cases the holder
of information about a second party could share that information with a third party at a higher
price that the resulting reduction in value to him. Take, for example, a piece of credit history
information on individual A that is worth $5 to B so long as B retains the information exclusively.
If B distributes the data to another party, C, the direct value of the data to B may not be diminished
at all, or may drop a bit to, say, $4. (It is one of the peculiar economic properties of information
that it can usually be shared without any or only little loss of usefulness to its holder. The
exceptions are business and trade secrets.) Suppose C, too, is willing to pay up to $4 for the same
information because it is of similar usefulness to him. Then the total value to B of not destroying
the information is $8. And why stop at two beneficiaries? B could resell the information also to
D, E, etc. So could C. In each case, the reduction in value of the information to one of its holders
may be less than what another party will gain by obtaining it.

Hence the information will spread. Accordingly, the subject of the information, individual A,
might have to expend a significant amount of money to prevent B from spreading the information.
If it is of use to a hundred firms, each valuing it at say $4, it would take a $396 “bribe” for A to
keep B from reselling it. If a resale of information is possible, B and C would market the same
information about A, and they will drive down its price to the marginal costs of distribution. In
that case, the information would spread greatly, but it would also be cheaper for A to bribe B at
the outset. Yet all B would have to do is to contractually assure, in the transaction with C, against
resale.

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