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

Abstract

A merger of two companies active in seemingly unrelated markets creates data linkage: by operating in a product market, the merged company acquires an informational advantage in an insurance market where companies compete in menus of contracts. In the insurance market, the informed insurer earns rent through cream-skimming. Some of this rent is passed on to consumers in the product market. Overall, the data linkage makes consumers better off when the insurance market is competitive and, under some conditions, even when the insurance market is monopolistic. The role of competitiveness of the product market and the data-sharing requirement are discussed.

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

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