57 Pages Posted: 5 May 2021 Last revised: 12 Jan 2022
Date Written: January 11, 2022
Vertically-integrated marketplaces commonly use data on the sales of third-party products to decide which private-label products to introduce. We develop a model to evaluate the competitive implications of this practice when third-party innovation is sensitive to private-label competition. We find that a ban on data usage stimulates innovation for "experimental'' product categories with significant upside demand potential, but stifles it otherwise. "Data patents'', which restrict data usage for a limited time, improve on a ban and can stimulate innovation across a wide variety of settings. Our results contribute to an ongoing policy discussion regarding data usage by dominant online platforms.
Keywords: Innovation, online platforms, data regulation, long-tail products
JEL Classification: D42, D82, L42
Suggested Citation: Suggested Citation