Do Consumers Benefit from Selling their Data? The Economic Effects of Personal Data Brokers in Digital Markets

Abstract

Personal data brokers (PDBs) offer consumers financial rewards for their personal data that they have created at online content and service providers (CSPs) as a by-product of their usage. Policy makers view PDBs as a promising building block for empowering users in the digital economy and have facilitated their emergence by new privacy rights that allow consumers to access and port their data. We develop a game-theoretic model to investigate how PDBs affect market outcomes in digital markets and under which conditions users will indeed benefit from them. Across several model variants, we find that in markets with a PDB two main equilibrium outcomes exist. First, a minimum income equilibrium can arise, where the PDB only pays a minimal reward, and the CSP strategically lowers its service quality, leaving consumers worse off than without a PDB. Second, a positive income equilibrium can arise, where the PDB pays significant rewards to consumers, and the CSP’s quality may be higher or lower depending on the PDB's efficiency in generating data revenues. Whether consumers are better off in this equilibrium depends on the relative strengths of three effects that we characterize formally and denote as competition effect, displacement effect, and appropriation effect. In particular, we show that for consumers to benefit from a PDB it is a necessary condition that the PDB increases aggregate industry revenues from data; but in this case, the CSP will also demand a higher (non-zero) price from consumers for using its service. Thus, our results bear important managerial and policy implications for data-driven business models and the regulation of data access and data portability.

Keywords: data brokers, personal information management systems, data portability, quality of online services, information intermediaries, data-driven business models, data economy, digital policy