Data Linkage between Markets: Does the Emergence of an Informed Insurer Cause Consumer Harm?

Abstract

A merger of two companies that are active in seemingly unrelated markets creates data linkage: by selling a product in one market, the merged company acquires informational advantage in a competitive insurance market. In the insurance market, the informed insurer earns an economic rent through cream-skimming. Some of this rent is competed away in the product market. Overall, the data linkage makes consumers better off. The role of competitiveness of each market, the possibility of market monopolization and the data-sharing requirement are discussed.

Keywords: insurance market, asymmetric information, data linkage, digital market

JEL Classification: D4, D82, G22, L22, L41, L86