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Mandating Privacy Spillovers: Interoperability in Data Markets

Author

Listed:
  • Kretschmer, Tobias
  • Rasch, Alexander
  • Shekar, Shiva
  • Wenzel, Tobias

Abstract

We study the effects of mandating interoperability in a network market. We model competition between an incumbent service that employs a data-driven business model in exchange for ’free’ access to the service and a privacy-preserving entrant. On the user side, there are direct network effects and users are privacy conscious. We characterize market outcomes with and without interoperability and find that interoperability may induce data or privacy spillovers as user data are transferred across different services. Because mandating interoperability results in higher data collection levels, it can hurt user welfare if these privacy spillovers are sufficiently large. Moreover, the entrant’s market share also decreases when privacy spillovers are large, that is, contestability is limited.

Suggested Citation

  • Kretschmer, Tobias & Rasch, Alexander & Shekar, Shiva & Wenzel, Tobias, 2025. "Mandating Privacy Spillovers: Interoperability in Data Markets," CEPR Discussion Papers 20383, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20383
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    File URL: https://cepr.org/publications/DP20383
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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