Welfare effects in the dominant market with price discrimination under differential information protection policies

The widespread adoption of big data and artificial intelligence (AI) challenges regulatory authorities with issues such as price discrimination, driving the need for targeted policy responses. This study examines the welfare effects of price discrimination in a competitive e-commerce market, where a dominant platform is endowed with substantial market scale and robust data utilization capabilities and competes with a smaller platform under differentiated information protection policies. Analytical results reveal that the No Information Protection (NIP) policy maximizes consumer surplus while minimizing platform profitability, a finding that contradicts the conventional view that unregulated markets would boost platform profitability via price discrimination at the cost of consumer surplus. Notably, neither the Voluntary Information Protection (VIP) policy, the Mandatory Information Protection (MIP) policy, nor the NIP policy can maximize platform profitability and consumer surplus simultaneously, highlighting the necessity of trade-offs in policy design. More specifically, to optimize social welfare, regulatory authorities should implement mandatory information protection controls for dominant platforms with lower data utilization capabilities, while refraining from regulating those with higher capabilities.