Data-Driven Envelopment with Privacy-Policy Tying

Abstract

We present a theory of monopoly protection by means of entry in adjacent markets that
have a common customer base (i.e., envelopment). A firm dominant in its market enters a data rich
secondary market and engages in predatory pricing and privacy-policy tying. We define
the latter as conditioning service provision to the subscription of a privacy-policy that allows
bundling of user data across all sources. Acquiring data from the secondary market confers
an advantage in the primary market that shields the dominant firm from entry, thus harming
consumers. We discuss potential remedies, including data unbundling, sharing and portability.

Keywords: Entry-Deterrence, Predatory Pricing, Platform Envelopment, User Data, Privacy-Policy Tying

JEL Classification: L12, L41