Mandating Privacy Spillovers: Interoperability in Data Markets

Tobias Kretschmer, Alexander Rasch, Shiva Shekar and Tobias Wenzel

No 20383, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study the effects of mandating interoperability in a network market. We model competition between an incumbent service that employs a data-driven business model in exchange for ’free’ access to the service and a privacy-preserving entrant. On the user side, there are direct network effects and users are privacy conscious. We characterize market outcomes with and without interoperability and find that interoperability may induce data or privacy spillovers as user data are transferred across different services. Because mandating interoperability results in higher data collection levels, it can hurt user welfare if these privacy spillovers are sufficiently large. Moreover, the entrant’s market share also decreases when privacy spillovers are large, that is, contestability is limited.

JEL-codes: L13 L15 L96 (search for similar items in EconPapers)
Date: 2025-06
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