Towards Efficient Information Sharing in Network Markets

35 Pages Posted: 3 Nov 2021

See all articles by Bertin Martens

Bertin Martens

Joint Research Centre; Tilburg Law and Economics Center (TILEC)

Geoffrey Parker

Dartmouth College

Georgios Petropoulos

Massachusetts Institute of Technology (MIT); Bruegel; Stanford University

Marshall W. Van Alstyne

Boston University – Questrom School of Business; Massachusetts Institute of Technology (MIT) - Sloan School

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2021

Abstract

Digital platforms facilitate interactions between consumers and merchants that allow the collection of profiling information which drives innovation and welfare. Private incentives, however, lead to information asymmetries resulting in market failures both on-platform, among merchants, and off-platform, among competing platforms. This paper develops two product differentiation models to study private and social incentives to share information within and between platforms. We show that there is scope for ex-ante regulation of mandatory data sharing that improves social welfare better than competing interventions such as barring entry, break-up, forced divestiture, or limiting recommendation steering. These alternate proposals do not make efficient use of information. We argue that the location of data access matters and develop a regulatory framework that introduces a new data right for platform users, the in-situ data right, which is associated with positive welfare gains. By construction, this right enables effective information sharing, together with its context, without reducing the value created by network effects. It also enables regulatory oversight but limits data privacy leakages. We discuss crucial elements of its implementation in order to achieve innovation-friendly and competitive digital markets.

Keywords: Information sharing, data rights, digital platforms, market failure, in-situ, algorithms, data portability

JEL Classification: D47, D82, K21, L21, L22, L40, L41, L43, L51, L86

Suggested Citation

Martens, Bertin and Parker, Geoffrey and Petropoulos, Georgios and Van Alstyne, Marshall W., Towards Efficient Information Sharing in Network Markets (November 1, 2021). Available at SSRN: https://ssrn.com/abstract=3954932 or http://dx.doi.org/10.2139/ssrn.3954932

Bertin Martens

Joint Research Centre ( email )

Edificio Expo, C
Inca Garcilaso, s/n
Sevilla, E-41092
Spain

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Geoffrey Parker

Dartmouth College ( email )

Department of Sociology
Hanover, NH 03755
United States
603-646-9075 (Phone)

HOME PAGE: http://engineering.dartmouth.edu/people/faculty/geoffrey-parker

Georgios Petropoulos (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium
22274217 (Phone)
22274217 (Fax)

Stanford University ( email )

Stanford, CA 94305
United States

Marshall W. Van Alstyne

Boston University – Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-358-3571 (Phone)

HOME PAGE: http://questromapps.bu.edu/mgmt_new/Profiles/VanAlstyneMarshall.html

Massachusetts Institute of Technology (MIT) - Sloan School ( email )

Initiative on the Digital Economy
245 First St, Room E94-1521
Cambridge, MA 02142
United States
617-253-0768 (Phone)

HOME PAGE: http://web.mit.edu/marshall/www/home.html

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