Digital Ecosystems and Data Regulation

Andrew Rhodes, Jidong Zhou and Junjie Zhou
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Andrew Rhodes: Toulouse School of Economics
Jidong Zhou: Yale University
Junjie Zhou: Tsinghua University

No 2426R1, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper develops a framework in which a multiproduct ecosystem competes with multiple single-product firms in both price and innovation. The ecosystem can use data from one product to improve the quality of its other products. We use the framework to study three regulatory policies aimed at leveling the playing field. Restricting the ecosystem's cross-product data usage, or forcing it to share data with single-product firms, benefits those firms and induces them to innovate more. However, these policies also dampen the ecosystem's incentive to collect data and innovate, potentially raising prices. Consumers are better off only when single-product firms are sufficiently good at innovating. Facilitating data exchange between single-product firms via a data cooperative can backfire and harm them, because it induces the ecosystem to price more aggressively. For both the data-sharing and data-cooperative policies, there exist data-compensation schemes such that consumers are better off compared to no regulation.

Pages: 65 pages
Date: 2026-02-01
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-reg
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