Obfuscation and Shrouding with Network Effects - Big Data Strategies and the Limits of Competition
24 Pages Posted: 24 Aug 2017 Last revised: 21 Oct 2017
Date Written: August 21, 2017
This article analyses data collection strategies with network effects. When data collection is shrouded by an incumbent network only some consumers manage to understand the dis-utility of data collection ("sophisticates") while others do not ("naives"). Yet, shrouded data collection only emerges after both, sophisticates and naives, joined the network which ensures that naives become locked-in. Market entry by a network that deliberately abstains from collecting data thus fails as customer switching is limited. Incumbent networks such as WhatsApp therefore remain dominant. Multihoming fails to prevent data collection showing that competition does not contain potential harm resulting from Big Data strategies.
Keywords: Big Data, Antitrust, Consumer Protection, Excess Inertia, Bounded Rationality
JEL Classification: K21, L12, D41
Suggested Citation: Suggested Citation