New technology has opened new windows for sellers to market their products. E-mail, fax, telemarketing and direct mail can reach thousands of consumers at a relatively low cost. However, consumers pay a price because their privacy is violated - and their response can have interesting implications for sellers and consumers.

Consumers may engage in concealment or deflection to avoid sellers' solicitations. Depending on the method they choose, this can boost seller's profits and consumer welfare, according to a model devised by Kai-Lung Hui of HKUST and his co-authors Il-Horn Hann, Sang-Yong T. Lee and Ivan P.L. Png.

"Privacy is a key concern for consumers. They use VCRs, TiVo, caller ID, spam filters, pop-up blockers, anonymous browsing and other devices and techniques to avoid marketing and protect their privacy. In 2005 the US industry spent $17.8 billion on consumer telemarketing, but over 100 million numbers were registered with the 'do not call' list," they said.

"Advertising and direct marketing impose inconvenience and other harm on consumers. Marketers don't internalise these harms and so they overspend on advertisements and direct marketing relative to the socially optimal level."

Consumers who try to conceal themselves from these solicitations by renting a post office box, registering with do-no-call lists and using an unlisted phone number may in fact be doing the seller a favour. The seller wants to reach high-benefit consumers who are interested in their products but low marketing costs means they cast a wide net and reach low-benefit consumers, too. When those low-benefit consumers engage in concealment, they help to increase the concentration of high-benefit consumers in the seller's pool. The marketing costs may be somewhat higher because the seller has to work harder to collect contact details for additional consumers, but this is outweighed by the quality of the consumers.

However, this favourable effect does not occur when high-benefit consumers try to conceal themselves because it puts them out of the seller's reach. Similarly, deflection does not help sellers because the messages, which may be blocked by call screening, pop-up blockers or spam filters, are simply thrown away.

"From the consumer's viewpoint, both tactics reduce the likelihood of receiving solicitations. But for sellers the impacts are different - concealment shifts solicitation to other consumers, while deflection causes solicitations to be discarded," they said.

The two tactics also have different impacts on consumer welfare. Concealment by low-benefit consumers can increase privacy harm because it causes sellers to concentrate marketing efforts, and thus privacy impacts, on high-benefit consumers. However, deflection and concealment by high-benefit consumers do not create such a problem.

The authors note that sellers' solicitations in general cause harm because consumers incur concealment and deflection costs. Sellers can also cause harm to other sellers because they ignore the demand they take away from them and therefore tend to send too many solicitations.

"How should sellers be induced to internalise the impacts they have on consumers and other sellers? Bill Gates famously advocated a postage charge on email to control spam," they said. "The optimal charge depends on the actions of the victims, that is, the consumers."

Deflection would result in a lower charge because it results in less privacy harm, while concealment by low-benefit consumers would increase privacy harm. The authors suggest low costs cause excessive solicitations to be sent out, because the seller remains profitable.

"Spam very likely satisfies this condition and hence the implication is that it should be subject to a tax. Whether telemarketing and direct mail should also be taxed depends on whether these methods satisfy the profitability condition," they said.

They conclude that policy-makers should emphasise deflection methods over concealment for consumers because they are better off when solicitations are thrown away rather than diverted to other consumers.