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On the Private and Social Value of Consumer Data in Vertically-Integrated Platform Markets

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Abstract

We characterize and compare the private and social incentives to collect consumer data by a vertically-integrated online intermediary who competes with third-party sellers listed on its platform and is required by regulation to share with rivals all the information it gathers. With linear intermediation fees and price competition, the intermediary over-invests in accuracy compared to the social optimum when the intra-platform competition is sufficiently weak and when demand is not too responsive to quality. By contrast, the intermediary tends to under-invest in accuracy when the intra-platform competition is strong enough, and demand is sufficiently responsive to quality. With quantity competition, the intermediary always over-invests in accuracy. Importantly, when consumers exhibit privacy concerns, the over-investment problem worsens, whereas the under-investment problem mitigates. We also investigate the impact of alternative (non-linear) contractual arrangements.

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  • Jorge Padilla & Salvatore Piccolo & Helder Vasconcelos, 2020. "On the Private and Social Value of Consumer Data in Vertically-Integrated Platform Markets," CSEF Working Papers 583, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:583
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    Keywords

    Consumer Data; Competition; Information Accuracy; Platforms; Privacy; Value of Information; Vertical Integration.;

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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