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Competing with Big Data

Author

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  • Prüfer, Jens

    (Tilburg University, School of Economics and Management)

  • Schottmuller, C.

    (Tilburg University, School of Economics and Management)

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," Other publications TiSEM b09cad5c-e6eb-4fe7-9184-f, Tilburg University, School of Economics and Management.
  • Handle: RePEc:tiu:tiutis:b09cad5c-e6eb-4fe7-9184-fd52eaabf9e2
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
    2. 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.
    3. 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.
    4. MARTENS Bertin, 2020. "An economic perspective on data and platform market power," JRC Working Papers on Digital Economy 2020-09, Joint Research Centre (Seville site).
    5. Jens Prüfer & Patricia Prüfer, 2020. "Data science for entrepreneurship research: studying demand dynamics for entrepreneurial skills in the Netherlands," Small Business Economics, Springer, vol. 55(3), pages 651-672, October.
    6. Yiquan Gu & Leonardo Madio & Carlo Reggiani, 2019. "Data Brokers Co-Opetition," CESifo Working Paper Series 7523, CESifo.
    7. Guy Aridor & Yishay Mansour & Aleksandrs Slivkins & Zhiwei Steven Wu, 2020. "Competing Bandits: The Perils of Exploration Under Competition," Papers 2007.10144, arXiv.org, revised Jun 2022.
    8. CARBALLA SMICHOWSKI Bruno & DUCH BROWN Nestor & MARTENS Bertin, 2021. "To pool or to pull back? An economic analysis of health data pooling," JRC Working Papers on Digital Economy 2021-06, Joint Research Centre (Seville site).
    9. Calvano, Emilio & Polo, Michele, 2021. "Market power, competition and innovation in digital markets: A survey," Information Economics and Policy, Elsevier, vol. 54(C).
    10. Jean-Marc Zogheib & Marc Bourreau, 2021. "Privacy, Competition, and Multi-Homing," EconomiX Working Papers 2021-15, University of Paris Nanterre, EconomiX.
    11. Krämer, Jan & Wohlfarth, Michael, 2018. "Market power, regulatory convergence, and the role of data in digital markets," Telecommunications Policy, Elsevier, vol. 42(2), pages 154-171.
    12. de Bas, Patrick & Batura, Olga & Yagafarova, Anastasia & van Gorp, Nicolai & Kesler, Reinhold & Laitenberger, Ulrich & Bertschek, Irene & Pichler, Eva, 2017. "Business-to-Business relations in the online platform environment. FWC ENTR/300/PP/2013/FC-WIFO: Final report," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 170570.
    13. 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.
    14. 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).
    15. Jens Prüfer & Christoph Schottmüller, 2021. "Competing with Big Data," Journal of Industrial Economics, Wiley Blackwell, vol. 69(4), pages 967-1008, December.
    16. Jens Prüfer & Patricia Prüfer, 2018. "Data science for institutional and organizational economics," Chapters, in: Claude Ménard & Mary M. Shirley (ed.), A Research Agenda for New Institutional Economics, chapter 28, pages 248-259, Edward Elgar Publishing.
    17. 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.
    18. Bertin Martens & Alexandre de Streel & Inge Graef & Thomas Tombal & Nestor Duch-Brown, 2020. "Business-to-Business data sharing: An economic and legal analysis," JRC Working Papers on Digital Economy 2020-05, Joint Research Centre (Seville site).
    19. Arnold, René & Hildebrandt, Christian & Taş, Serpil, 2020. "European data economy: Between competition and regulation. Final report," Study Series, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH, number 251538.
    20. Wolfgang Kerber, 2019. "Data-sharing in IoT Ecosystems from a Competition Law Perspective: The Example of Connected Cars," MAGKS Papers on Economics 201921, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    21. 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.

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    More about this item

    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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