Download This PaperDo Consumers Benefit from Selling their Data? The Economic Impact of Personal Data Brokers on Digital Markets
96 Pages Posted: 16 Mar 2018 Last revised: 19 Dec 2023
Date Written: December 1, 2023
Abstract
Personal data brokers (PDBs) enable personal data markets by offering consumers financial rewards for the data that they have created at online content and service providers (CSPs) as a by-product of their usage of these services. Policymakers view PDBs as a promising building block for empowering users in the digital economy and have facilitated their emergence through new privacy rights such as a right for data portability. We develop a game-theoretic model to investigate the impact of PDBs on market outcomes and consumer surplus. We identify and characterize three strategic effects – the competition effect, displacement effect, and appropriation effect – that govern a CSP’s strategic response to the advent of a PDB. Across several model variants, we find that in markets with a PDB, two main equilibrium outcomes exist. First, a minimum income equilibrium, in which the market for personal data fails. In this equilibrium the PDB only pays a minimal reward to consumers and the CSP strategically lowers its service quality, leaving consumers always worse off than without a PDB. Second, a positive income equilibrium, where the PDB pays a significant reward to consumers and the CSP’s quality may be higher or lower, depending on the PDB’s efficiency in generating data revenue. A market for personal data can only exist under a positive income equilibrium, but even then consumers only benefit if the PDB is very efficient such that the industry’s overall data revenues are higher than without the PDB. We explore several complementary policy interventions, such as increasing the scope of data portability, a Do-Not-Sell-My-Data regulation and information campaigns, but find that these are unlikely to rectify the market failure. Thus, our results bear important managerial and policy implications for data-driven business models and the regulation of the data economy.
Keywords: data brokers, personal information management systems, data portability, quality of online services, information intermediaries, data-driven business models, data economy, digital policy
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