Competing for cookies: Platforms’ business models in data markets with network effects

Sarit Markovich (s-markovich@kellogg.northwestern.edu) and Yaron Yehezkel (yehezkel@tauex.tau.ac.il)
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Sarit Markovich: Kellogg School of Management, Northwestern University, Evanston, IL, USA
Yaron Yehezkel: Coller School of Management, Tel-Aviv University, Ramat-Aviv, Israel

No 24-02, Working Papers from NET Institute

Abstract: We consider platform competition when platforms can either 1) commercialize users’ data and in return offer their services for free (data-based business model); 2) protect users’ privacy and charge users for participation (subscription-based model); or 3) offer both options (the hybrid model). We find that competition does not always motivate the incumbent platform to protect users’ privacy. When network effects are strong, competition can motivate the incumbent to shift from the subscription-based model to the hybrid model; thereby, increasing data commercialization. Yet, the opposite case occurs when network effects are weak. Moreover, allowing the incumbent to adopt the hybrid model is welfare enhancing when network effects are strong, and welfare reducing (or neutral) otherwise.

Keywords: platforms with network effects; business models; data commercialization (search for similar items in EconPapers)
JEL-codes: L1 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2024-09
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic, nep-pay and nep-reg
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