Insider Imitation

82 Pages Posted: 5 May 2021 Last revised: 6 Nov 2023

See all articles by Erik Madsen

Erik Madsen

New York University

Nikhil Vellodi

Paris School of Economics (PSE)

Date Written: November 1, 2023

Abstract

We study how regulating data usage impacts innovation in digital markets. Platforms commonly use proprietary data about third-party sellers to inform their own competing offerings, dampening incentives for innovation. We model this interaction and characterize how data usage restrictions reshape these incentives. An outright ban on data usage may boost or curtail innovation, depending upon the thickness of the right tail of demand for new products. More flexible rules controlling when and what data is made available can always improve the effectiveness of regulation. Our results contribute to an ongoing policy discussion regarding competition in digital markets.

Keywords: Innovation, digital markets, data privacy, data regulation

JEL Classification: D42, D82, L42

Suggested Citation

Madsen, Erik and Vellodi, Nikhil, Insider Imitation (November 1, 2023). Available at SSRN: https://ssrn.com/abstract=3832712 or http://dx.doi.org/10.2139/ssrn.3832712

Erik Madsen

New York University ( email )

19 West 4th Street
New York, NY 10012
United States

Nikhil Vellodi (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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