When Private Information Settles the Bill: Money and Privacy in Google's Market for Smartphone Applications

We shed light on a money-for-privacy trade-off in the market for smartphone applications ("apps"). Developers offer their apps at lower prices in return for greater access to personal information, and consumers choose between low prices and more privacy. We provide evidence for this pattern using data from 300,000 apps obtained from the Google Play Store (formerly Android Market) in 2012 and 2014. Our findings show that the market's supply and demand sides both consider an app's ability to collect private information, measured by the apps's use of privacy-sensitive permissions: (1) cheaper apps use more privacy-sensitive permissions; (2) given price and functionality, demand is lower for apps with sensitive permissions; and (3) the strength of this relationship depends on contextual factors, such as the targeted user group, the app's previous success, and its category. Our results are robust and consistent across several robustness checks, including the use of panel data, a difference-in-differences analysis, "twin" pairs of apps, and various measures of privacy-sensitivity and app demand.