Business-to-Business Data Sharing: An Economic and Legal Analysis

Abstract

The European Commission announced in its Data Strategy (2020) its intentions to propose an enabling legislative framework for the governance of common European data spaces, to review and operationalize data portability, to prioritize standardization activities and foster data interoperability and to clarify usage rights for co-generated IoT data. This Strategy starts from the premise that there is not enough data sharing and that much data remain locked up and are not available for innovative re-use. The Commission will also consider the adoption of a New Competition Tool as well as the adoption of ex ante regulation for large online gate-keeping platforms as part of the announced Digital Services Act Package . In this context, the goal of this report is to examine the obstacles to Business-to-Business (B2B) data sharing: what keeps businesses from sharing or trading more of their data with other businesses and what can be done about it? For this purpose, this report uses the well-known tools of legal and economic thinking about market failures. It starts from the economic characteristics of data and explores to what extent private B2B data markets result in a socially optimal degree of data sharing, or whether there are market failures in data markets that might justify public policy intervention. It examines the conditions under which monopolistic data market failures may occur. It contrasts these welfare losses with the welfare gains from economies of scope in data aggregation in large pools. It also discusses other potential sources of B2B data market failures due to negative externalities, risks and transaction costs and asymmetric information situations. In a next step, the paper explores solutions to overcome these market failures. Private third-party data intermediaries may be in a position to overcome market failures due to high transactions costs and risks. They can aggregate data in large pools to harvest the benefits of economies of scale and scope in data. Where third-party intervention fails, regulators can step in, with ex-post competition instruments and with ex-ante regulation. The latter includes data portability rights for personal data and mandatory data access rights.

Keywords: digital data, data market failures, data sharing, portability, data and antitrust

JEL Classification: L51,L86