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 2426, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper provides a framework in which a multiproduct ecosystem competes with many single-product firms in both price and innovation. The ecosystem is able to use data collected on one product to improve the quality of its other products. We study the impact of data regulation which either restricts the ecosystem's cross-product data usage, or which requires it to share data with small firms. Each policy induces small firms to innovate more and set higher prices; it also dampens data spillovers within the ecosystem, reduces the ecosystem's incentive to collect data and innovate, and potentially increases its prices. As a result, data regulation has an ambiguous impact on consumers, and is more likely to benefit consumers when small firms are relatively more efficient in innovation. A data cooperative among small firms, which helps them to share data with each other, does not necessarily benefit small firms and can even harm consumers.

Pages: 69 pages
Date: 2025-02-14
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic, nep-pay and nep-reg
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