Standing on the Shoulders of Web Giants: The Economic Effects of Personal Data Markets
28 Pages Posted: 16 Mar 2018 Last revised: 18 Aug 2018
Date Written: August 15, 2018
Internet users create a wealth of (personal) data when using content and service providers (CSPs), who then sell this data on the data market. Personal data markets (PDMs) encourage users to port their data from CSPs and enable them to sell their data directly. In Europe, this is further facilitated by the right to data portability introduced by the General Data Protection Regulation. Based on a game-theoretic model, we investigate how a PDM affects the CSP's incentives to invest in the quality of its service, and its pricing strategy for consumers. We identify three, partially countervailing, economic effects that govern the relevant strategic trade-offs in an Internet market with PDM. On the one hand, the presence of a PDM will induce the CSP to reduce the quality of its service, (1) because it faces lower revenues in the data market (competition effect), and (2) because it can free-ride on the PDM-induced data creation incentive for users (displacement effect). On the other hand, a PDM will lead to an increase in the CSP's quality, (3) because the CSP can partially appropriate the additional consumer surplus that has been created by the PDM through an increase in its price for the service (appropriation effect). The strengths of these effects depend crucially on the PDM's efficiency on the data market, and consumers will only be able to benefit if the PDM can sell data more efficiently than the CSP.
Keywords: Data Markets, Data Sharing, Privacy, Online Platforms, Online Advertising, Intellectual Property, Industrial Organization
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