As firms increasingly use consumer data to refine their pricing strategies, policymakers are exploring data-sharing remedies to strengthen competition in digital markets.
The issue is especially timely given provisions in the EU’s Digital Markets Act (DMA) designed to expand access to data held by large digital platforms.
The paper, “Data Sharing in Hybrid Marketplaces with Endogenous Fee Setting,” co-authored by CRA’s Federico Navarra, shows that the effects of data sharing are more nuanced than they may first appear.
The authors study a hybrid marketplace in which a vertically integrated platform competes with an independent seller on its own marketplace while charging that seller a transaction fee. With access to consumer-level data, the platform can tailor prices to individual buyers and choose whether to share that information with the seller. The authors find that when the platform controls transaction fees, it shares the data but uses those fees to limit direct competition with the seller.
Key takeaways from the article include:
- Data sharing does not always benefit consumers: Although it can improve market efficiency, it may weaken consumer welfare when platforms can adjust to other contractual terms.
- Transaction fees can soften competition: A vertically integrated platform may share its data advantage while using seller fees to limit direct price competition.
- Platforms and firms may capture most of the value: In the model, data sharing raises profits but reduces consumer surplus.
Read the full article published in The Journal of Industrial Economics here.
