Advertising strategies of competing firms considering consumer privacy concerns

Abstract Targeted advertising based on consumers' purchase history is the most prevalent choice for firms; however, its effectiveness is affected by an increase in consumer privacy concerns. We established a two‐period game model to analyze firms' equilibrium advertising strategies, pricing strategies, and profits when a segment of consumers is unwilling to provide their purchase information owing to privacy concerns. Based on the equilibrium results, some valuable managerial insights are suggested for competing firms. Firms should consider the proportion of privacy‐sensitive consumers and advertising costs when developing advertising strategies. Targeted advertising is not an optimal choice invariably.