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

Rosa-Branca Esteves () and Francisco Carballo-Cruz ()
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Rosa-Branca Esteves: NIPE/Center for Research in Economics and Management, University of Minho, Portugal
Francisco Carballo-Cruz: NIPE/Center for Research in Economics and Management, University of Minho, Portugal

No 06/2023, NIPE Working Papers from NIPE - Universidade do Minho

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 harm to consumers is signifi cant. 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 signi ficant harm to consumers and overall welfare. Only in markets with low enough intermediate entry costs, information-sharing obligations can foster competition and bene fit 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
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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