The Strategic Value of Data Sharing in Interdependent Markets

Hemant Bhargava, Antoine Dubus, David Ronayne and Shiva Shekhar
Additional contact information
Hemant Bhargava: University of California, Davis
Antoine Dubus: ETH Zurich
Shiva Shekhar: Tilburg School of Economics and Management

No 498, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: Large, generalist, technology firms—so-called “big-tech” firms—powerful in their primary market, routinely enter secondary markets consisting of specialist firms. Naturally, one might expect a specialist firm to be fiercely protective of its data as a way to maintain its market position in the secondary market. Counter to this intuition, we demonstrate that a specialist firm willingly shares its market data with an intruding tech generalist. We do so by developing a model of crossmarket competition in which data collected via consumer usage in each market is a factor of product quality in both markets. We show that a specialist firm shares its data to strategically create co-dependence between the two firms, thereby softening competition and transforming the generalist firm from a traditional competitor into a co-opetitor. For the generalist intruder, data from the specialist firm substitute for its own investments in product quality in the secondary market. As such, the act of sharing data makes the intruder a stakeholder in the valuable data collected by the specialist, and consequently in the specialist’s continued success. Moreover, while the firms benefit from data sharing, consumers can be worse off from the weaker price competition and lower investments in innovation. Our results have managerial and policy implications, notably on account of backlash against data collection and the market power of big tech firms.

Keywords: data-driven quality improvements; externalities; co-opetition; data sharing (search for similar items in EconPapers)
Date: 2024-02-17
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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Related works:
Working Paper: The Strategic Value of Data Sharing in Interdependent Markets (2024)
Working Paper: The Strategic Value of Data Sharing in Interdependent Markets (2024)
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