The Value of Information in Competitive Markets: The Impact of Big Data on Small and Medium Enterprises

Abstract

In this paper, we empirically investigate how the performance and decision-making of small and medium-size enterprises (SMEs) change when gaining access to strategically valuable market information. To do so, we evaluate the impact of an unprecedented Big Data information-sharing service diffused at zero cost by a large European bank among its SMEs customers. Adopting firms had monthly access to reports elaborated by the bank with rich information about each firm’s clientele portfolio and that of its competitors. Using first-differences, we find adoption is associated with a 4.5% increase in establishment revenue, whereas IV estimation results show that adoption causally increases revenue by 9% for those establishments whose adoption decision is most strongly affected by the instrument. The main mechanism driving our result is that the new information prompted adopting establishments to target existing, yet unexploited, business opportunities. More specifically, we find adopting establishments increase their sales to underrepresented gender-age customer groups in their customer portfolio prior to adoption. Our evidence also suggests that adopting establishments shift sales between weekly peak and off-peak times. Because SMEs obtain substantial returns from information access, our findings suggest managerial inattention and high adoption costs are key factors deterring small firms from investing in resources to acquire and analyze market information.

Keywords: information, competitive markets, Big Data, data sharing, small and medium enterprises

JEL Classification: G20, L20, L80, M15, O32, O33