Stay Ahead: Active Data Management and Market Power

Abstract

Active and strategic data generation and acquisition increasingly affect firms' operations and consumers' welfare. We develop a rational expectations equilibrium model to examine the economic consequences of actively acquiring consumer data of oligopoly firms. To gain an information advantage and, therefore, market power, one firm can strategically expand its supplies in the short run to compete for more consumer data so that it deters another firm from entering the market in the long run. Therefore, a short-run complementarity endogenously arises for substitution goods. Consequently, a significant dispersion in information technology (IT) between firms to extract information from active data acquisition can generate market power, crowding out the rival firm and reducing consumers' welfare. In contrast, moderate IT dispersions can stimulate competition and improve consumers' welfare, even compared to the situation with both firms having relatively high but homogeneous technology levels.

Keywords: Data process capacity, strategic supply, market power, data economy

JEL Classification: G12, G14