Obfuscation and Shrouding with Network Effects: Big Data Strategies and the Limits of Competition
28 Pages Posted: 24 Aug 2017 Last revised: 12 Mar 2018
Date Written: August 21, 2017
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: Suggested Citation