Can data openness unlock competition when an incumbent has exclusive data access for personalized pricing?

Rosa-Branca Esteves and Francisco Carballo-Cruz

Information Economics and Policy, 2023, vol. 64, issue C

Abstract: This paper examines how an incumbent firm's data investment decisions can impact market structure and competition. In markets with sufficiently low entry costs, using exclusive data for personalized pricing (PP) does not raise any barrier to entry. However, in markets with intermediate entry costs, the risk of competition and consumer harm is significant. Policy intervention is needed to foster competition. The effectiveness of an information-sharing policy depends on whether the incumbent anticipates it. Mandatory information sharing can only promote entry in markets with intermediate to high entry costs if the incumbent does not foresee its imposition. If the incumbent foresees this policy, it will strategically reduce its data acquisition to deter entry, by serving fewer consumers in the early period. This will cause significant harm to consumers and overall welfare. In markets with sufficiently low intermediate entry costs, information-sharing obligations can effectively foster competition and benefit consumers, regardless of the incumbent's anticipation. A ban on price personalization practices could be a better policy option to promote competition, especially in markets with high entry costs or where mandatory information sharing is not effective due to the incumbent strategic behavior.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:64:y:2023:i:c:s0167624523000318

DOI: 10.1016/j.infoecopol.2023.101046

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