On the Private and Social Value of Consumer Data in Vertically-Integrated Platform Markets
40 Pages Posted: 24 Nov 2020 Last revised: 10 Sep 2021
Date Written: October 11, 2020
Abstract
We characterize and compare the private and social incentives to collect consumer data by a vertically-integrated online intermediary who competes with third-party sellers listed on its platform and is required by regulation to share with rivals all the information it gathers. With linear intermediation fees and price competition, the intermediary over-invests in accuracy compared to the social optimum when the intra-platform competition is sufficiently weak and when demand is not too responsive to quality. By contrast, the intermediary tends to under-invest in accuracy when the intra-platform competition is strong enough, and demand is sufficiently responsive to quality. With quantity competition, the intermediary always over-invests in accuracy. Importantly, when consumers exhibit privacy concerns, the over-investment problem worsens, whereas the under-investment problem mitigates. We also investigate the impact of alternative (non-linear) contractual arrangements.
Keywords: Consumer Data, Competition, Information Accuracy, Platforms, Privacy, Value of Information, Vertical Integration
JEL Classification: D47, D85, L5, L81, M3
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