Competing with Big Data

TILEC Discussion Paper No. 2017-006

CentER Discussion Paper 2017-007

50 Pages Posted: 27 May 2019

See all articles by Jens Prufer

Jens Prufer

Tilburg University - Law and Economics Center (TILEC); Tilburg University - Department of Economics; University of East Anglia (UEA) - Centre for Competition Policy; University of East Anglia (UEA) - School of Economics

Christoph Schottmüller

University of Cologne; Tilburg Law and Economics Center (TILEC)

Date Written: February 16, 2017

Abstract

This paper studies competition in data-driven markets, that is, markets where the cost of quality production is decreasing in the amount of machine-generated data about user preferences or characteristics, which is an inseparable byproduct of using services offered in such markets. This gives rise to data-driven indirect network effects. We construct a dynamic model of R&D competition, where duopolists repeatedly determine their innovation investments, and show that such markets tip under very mild conditions, moving towards monopoly. In a tipped market, innovation incentives both for the dominant firm and for competitors are small. We also show under which conditions a dominant firm in one market can leverage its position to a connected market, thereby initiating a domino effect. We show that market tipping can be avoided if competitors share their user information.

Keywords: Big Data, Datafication, Data-driven Indirect Network Effects, Dynamic Competition

JEL Classification: D43, D92, L13, L43, L86

Suggested Citation

Prufer, Jens and Schottmüller, Christoph and Schottmüller, Christoph, Competing with Big Data (February 16, 2017). TILEC Discussion Paper No. 2017-006, CentER Discussion Paper 2017-007, Available at SSRN: https://ssrn.com/abstract=2918726 or http://dx.doi.org/10.2139/ssrn.2918726

Jens Prufer (Contact Author)

Tilburg University - Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

University of East Anglia (UEA) - School of Economics ( email )

3.06, Registry
University of East Anglia
Norwich, NR4 7TJ
United Kingdom

Christoph Schottmüller

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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