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Obfuscation and Shrouding with Network Effects: Big Data Strategies and the Limits of Competition

30 Pages Posted: 24 Aug 2017 Last revised: 9 Feb 2018

Georg Clemens

Compass Lexecon

Mutlu Özcan

Ruhr-University Bochum

Date Written: August 21, 2017

Abstract

This article analyses Big Data strategies in markets with network effects. An incumbent firm can abuse its market dominance by implementing a Big Data strategy that “shrouds” data collection. Thereby, only “sophisticated” consumers realize that data is collected and that it yields a dis-utility due to the infringement of privacy while “naive” consumers fail to understand this. Shrouded data collection only emerges after both, sophisticates and naives, joined the incumbent network in a first stage. This guarantees that naives become locked-in. Subsequent market entry by a network that does not collect data therefore fails, as the naives’ inertia keeps sophisticates, too, from switching. Hence, the incumbent remains dominant. Surprisingly, multihoming exacerbates abusive data collection showing the limits of competition in preventing abusive Big Data strategies.

Keywords: Big Data, Antitrust, Consumer Protection, Excess Inertia, Bounded Rationality

JEL Classification: K21, L12, D41

Suggested Citation

Clemens, Georg and Özcan, Mutlu, Obfuscation and Shrouding with Network Effects: Big Data Strategies and the Limits of Competition (August 21, 2017). Available at SSRN: https://ssrn.com/abstract=3023467 or http://dx.doi.org/10.2139/ssrn.3023467

Georg Clemens

Compass Lexecon ( email )

23 Square de Meeûs
Brussels, 1000
Belgium

Mutlu Özcan (Contact Author)

Ruhr-University Bochum ( email )

Bochum, 44780
Germany

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