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Competing with Big Data

Author

Listed:
  • Prüfer, Jens

    (Tilburg University, Center For Economic Research)

  • Schottmuller, C.

    (Tilburg University, Center For Economic Research)

Abstract

This paper studies competition in data-driven markets, that is, markets where the cost of quality production is decreasing in the amount of machine-generated data about user preferences or characteristics, which is an inseparable byproduct of using services offered in such markets. This gives rise to data-driven indirect network effects. We construct a dynamic model of R&D competition, where duopolists repeatedly determine their innovation investments, and show that such markets tip under very mild conditions, moving towards monopoly. In a tipped market, innovation incentives both for the dominant firm and for competitors are small. We also show under which conditions a dominant firm in one market can leverage its position to a connected market, thereby initiating a domino effect. We show that market tipping can be avoided if competitors share their user information.

Suggested Citation

  • Prüfer, Jens & Schottmuller, C., 2017. "Competing with Big Data," Discussion Paper 2017-007, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:b09cad5c-e6eb-4fe7-9184-fd52eaabf9e2
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    big data; datafication; data-driven indirect network effects; dynamic competition; regulation;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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