Blessing or Curse? Implications of Data Brokers for Publisher Competition

The abundance of consumer data has given rise to a new data broker industry that plays a pivotal role in targeted advertising. Many publishers rely on data brokers to gain (i) individual insights drawn from their own data or (ii) collective insights drawn from both their data and those of their competitors, thus improving their targeting capabilities. As data brokers control large volumes of data, they can govern how data insights are sold to downstream publishers. Despite their importance, prior studies provide little insight into the strategic function of data brokers and their subsequent impact on downstream competition. To address this research gap, we build an analytical model to analyze the interactions among a data broker, two competing publishers, and advertisers. Our analysis yields several novel findings. First, we show that the data broker may strategically set prices in a manner that leads to the exclusive selling of collective insights to one publisher, as opposed to nonexclusive selling involving two publishers. This result implies that it may be advantageous for the data broker to pursue an exclusive strategy that makes data insights scarcer for some firms. Second, we illustrate that competition between publishers can be either facilitated or impeded by the data broker depending on the broker’s interests when selling the data insights. Finally, the data broker may induce both competition-mitigation and value-enhancing effects that affect aggregate welfare. Interestingly, although the data broker’s decision (i.e., exclusive selling) may reduce market competition, the aggregate welfare can still improve because collective insights allow publishers to increase their targeting value for advertisers more efficiently.