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Competing with Big Data

Author

Listed:
  • Prüfer, Jens

    (Tilburg University, TILEC)

  • Schottmuller, C.

    (Tilburg University, TILEC)

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.
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Suggested Citation

  • Prüfer, Jens & Schottmuller, C., 2017. "Competing with Big Data," Discussion Paper 2017-006, Tilburg University, Tilburg Law and Economic Center.
  • Handle: RePEc:tiu:tiutil:29de4480-00db-473b-a0ee-b387e748c5a4
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    References listed on IDEAS

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    Cited by:

    1. Argentesi, Elena & Buccirossi, Paolo & Calvano, Emilio & Duso, Tomaso & Marrazzo, Alessia & Nava, Salvatore, 2019. "Merger Policy in Digital Markets: An Ex-Post Assessment," CEPR Discussion Papers 14166, C.E.P.R. Discussion Papers.
    2. T. Robert Fetter & Andrew L. Steck & Christopher Timmins & Douglas Wrenn, 2018. "Learning by Viewing? Social Learning, Regulatory Disclosure, and Firm Productivity in Shale Gas," NBER Working Papers 25401, National Bureau of Economic Research, Inc.
    3. Koski, Heli & Kässi, Otto & Braesemann, Fabian, 2020. "Killers on the Road of Emerging Start-ups – Implications for Market Entry and Venture Capital Financing," ETLA Working Papers 81, The Research Institute of the Finnish Economy.
    4. Gary Biglaiser & Emilio Calvano & Jacques Crémer, 2019. "Incumbency advantage and its value," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 41-48, January.
    5. Guy Aridor & Yishay Mansour & Aleksandrs Slivkins & Zhiwei Steven Wu, 2020. "Competing Bandits: The Perils of Exploration Under Competition," Papers 2007.10144, arXiv.org, revised Mar 2021.
    6. Calvano, Emilio & Polo, Michele, 2020. "Market Power, Competition and Innovation in digital markets: a survey," CEPR Discussion Papers 14314, C.E.P.R. Discussion Papers.
    7. Andrea Amelio & Thomas Buettner & Cyril Hariton & Gábor Koltay & Penelope Papandropoulos & Geza Sapi & Tommaso Valletti & Hans Zenger, 2018. "Recent Developments at DG Competition: 2017/2018," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(4), pages 653-679, December.
    8. Bertin Martens, 2018. "The impact of data access regimes on artificial intelligence and machine learning," JRC Working Papers on Digital Economy 2018-09, Joint Research Centre (Seville site).

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    More about this item

    Keywords

    big data; datafication; data-driven indirect network effects; dynamic competition; regulation;
    All these keywords.

    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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