Monday, December 5, 2022
Date Written: December 12, 2021
One essential concern regarding consumer privacy regulation is that it harms the business model of app startups, an integral group of B2C startups. Yet, little is known so far about consumer privacy’s consequences on app startups, mostly US-based. We seek to contribute with an empirical study that assesses the consequences of GDPR on two key outcomes of app startups, namely their ability to secure venture capital financing and their survival. We report the results of a difference-in-differences study, comparing affected US-app-startups with unaffected US-control-startups. We observe that GDPR reduced the financing of US-app-startups and increased the likelihood of their closure. Our results advance our understanding of consumer privacy’s impact on the performance of digital consumer products producers, shed light on privacy’s economic costs to previously neglected US-based firms and draw attention to GDPR’s geographic spillovers. Our findings inform policymakers striking a balance between consumer privacy and innovation.