Startseite Data and Competitive Markets: Some Notes on Competition, Concentration and Welfare
Artikel
Lizenziert
Nicht lizenziert Erfordert eine Authentifizierung

Data and Competitive Markets: Some Notes on Competition, Concentration and Welfare

  • António Osório ORCID logo EMAIL logo
Veröffentlicht/Copyright: 2. Juni 2022
The B.E. Journal of Theoretical Economics
Aus der Zeitschrift The B.E. Journal of Theoretical Economics Band 23 Heft 1

Abstract

Companies are increasingly using data to predict behavior and improve the relation with their customers. In this context, data exchange raises important concerns regarding competition, concentration and welfare. This paper presents a novel linear demand approach that captures data and information effects in competitive markets, which are conveniently summarized in a precision parameter. Subsequently, the proposed approach is applied to study the firm’s incentives to exchange data and their impact in fundamental market variables, welfare and market concentration measures. We found that the incentives for data exchange between competitor firms emerge when the individual information gains are strong enough to compensate for the competitor’s information gains, and the associated strategic correlation effect between varieties. The results also suggest that market concentration tends to increase after data exchange, but both consumers and producers benefit from it. The reason is that better data allows firms to positioning closer to consumers’ needs.

Keywords: data; data exchange; linear demand; consumer targeting; competitive markets
JEL Classification: D11; L11; L40
Corresponding author: António Osório, Dept. Economics, Universitat Rovira i Virgili and ECO-SOS, Tarragona, Spain, E-mail:

Acknowledgments

Support from the GRODE, Universitat Rovira i Virgili and the Spanish Ministry of Science and Innovation Project RTI2018-094733-B-100 (AEI/FEDER, UE) and PID2019-105982GB-100 is gratefully acknowledged. I would like to thank Juan Pablo Rincón-Zapatero, as well as several seminars and congress participants for helpful comments and discussions. The usual caveat applies.

Appendix: Proofs of the Results

Proof of Corollary 1

The proof is obtained by verifying the sign of the derivative of q j , p j , π j , q k , p k and π k with respect to ρ j and k ≠ j, under the assumption that a − c ≥ α n / ρ j − ∑ k ≠ j n 1 / ρ k for all j. □

Proof of Corollary 2

The proof is obtained by verifying the sign of the derivative of q 1, p 1, π 1, q 2, p 2 and π 2 with respect to ρ 1 (or ρ 1), under the assumption that 2 ρ 1 ≥ s ρ 2 and 2 ρ 2 ≥ s ρ 1 . □

Proof of Proposition 3 and Corollary 3

In the additive n-firms model, the profit of firm j in Expression (6) after having exchanged data with firm k becomes:

π j ′ = a − c − ( n − 1 ) α / ρ j + k + α ∑ l ≠ k , j n 1 / ρ l 2 / ( ( n + 1 ) b ) 2 ,

for j = 1, …, n. After some algebra, for ρ j ≥ ρ k , this profit is higher than the profit before exchanging data, which is given by Expression (6). In other words, π j ′ ≥ π j if inequality (14) is satisfied. Otherwise, if ρ j ≤ ρ k , inequality (14) is always satisfied. In the symmetric case, i.e. ρ j = ρ k , inequality (14) is always satisfied because n ≥ 1 and ρ j+k ≥ ρ j . □

Proof of Proposition 4

Simply compare q j ′ ≥ q j and p j ′ ≥ p j to obtain again inequality (14). □

Proof of Proposition 5 and Corollary 4

In the multiplicative 2-firms model, the profit of firm j in Expression (13) after exchanging data with firm k becomes:

π j ′ = ( a − c ) 2 ρ j + k ( 2 − s ′ ) 2 / ( b ( 4 − s ′ 2 ) 2 ) ,

for j = 1, 2, where s ′ = s j k ′ = s k j ′ ≥ s is the degree of substitution after the data exchange. After some algebra, this profit is higher than the profit before exchanging data, which is given by Expression (13), i.e. π j ′ ≥ π j , if inequality (15) is satisfied. In the symmetric case, i.e. ρ j = ρ k , inequality (15) becomes ρ j+k /(2 + s′)2 ≥ ρ j /(2 + s)2, which is satisfied if ρ j+k is sufficiently larger than ρ j and/or s′ is not too larger than s. □

Proof of Proposition 6

In the multiplicative 2-firms model, the equilibrium quantity and price of firm j in Expressions (11) and (12), respectively, after having exchanged data with firm k become:

q j ′ = ( a − c ) ρ j + k / b ( 2 + s ′ ) ,

and,

p j ′ = a ( 2 − s ′ ) + c ( 2 + s ′ − s ′ 2 ) / ( 4 − s ′ 2 ) ,

respectively.

The firm j quantity after the data exchange is larger than before, which is given by Expression (11), i.e. q j ′ ≥ q j , if the following inequality is satisfied:

(16) ρ j + k ≥ ( 2 + s ′ ) ρ j ( 2 ρ j − s ρ k ) ( 2 + s ) ( 2 − s ) .

If inequality (16) is true for ρ j ≥ ρ k , then it is also true for ρ j ≤ ρ k because the right-hand side becomes smaller. Then, for ρ j ≥ ρ k , inequality (16) is satisfied if inequality (15) is also satisfied, i.e. if the right-hand side of inequality (15) is larger than the right-hand side of inequality (16), i.e. if:

( 2 + s ′ ) 2 ( 2 ρ j − s ρ k ) 2 ( 2 + s ) 2 ( 2 − s ) 2 ≥ ( 2 + s ′ ) ρ j ( 2 ρ j − s ρ k ) ( 2 + s ) ( 2 − s ) .

After some algebra, this inequality becomes ( 2 + s ′ ) ( 2 − s ρ k / ρ j ) ≥ ( 2 + s ) ( 2 − s ) , which is more difficult to satisfy if s′ = s, and in this case becomes ( 2 − s ρ k / ρ j ) / ( 2 − s ) ≥ 1 . Then, if ρ k /ρ j ≤ 1 this inequality is always satisfied because the numerator is larger than the denominator. Consequently, if inequality (16) is satisfied for ρ k /ρ j ≤ 1, it is also satisfied for ρ k /ρ j ≥ 1. Symmetry is just a particular case. Therefore, if there exist incentives for data exchange, then both firms’ equilibrium quantities increase.

Now consider the prices. The firm j price after the data exchange is lower than before, which is given by Expression (12), i.e. p j ′ ≤ p j , if the following inequality is satisfied:

2 ( a + c ) − ( a − c ) s ′ − c s ′ 2 ( 4 − s ′ 2 ) ≤ 2 ( a + c ) − ( a − c ) s ρ k / ρ j − c s 2 ( 4 − s 2 ) .

After some algebra this inequality reduces to ρ k / ρ j ≤ ( 2 s ′ + s 2 ) / ( s ( 2 + s ′ ) ) . The right-hand side increases in s′ and decreases in s, therefore, it takes the minimum value ρ k / ρ j ≤ 1 at s = s′. Therefore, if ρ k /ρ j ≤ 1, firm j always decreases prices after the data exchange, which includes the symmetric case, but not necessarily the case ρ k /ρ j > 1. □

References

Acquisti, A., C. Taylor, and L. Wagman. 2016. “The Economics of Privacy.” Journal of Economic Literature 54 (2): 442–92. https://doi.org/10.1257/jel.54.2.442.Suche in Google Scholar

Belleflamme, P., W. M. W. Lam, and W. Vergote. 2020. “Competitive Imperfect Price Discrimination and Market Power.” Marketing Science 39 (5): 996–1015. https://doi.org/10.1287/mksc.2020.1234.Suche in Google Scholar

Bergemann, D., A. Bonatti, and T. Gan. 2020. “The Economics of Social Data.” In Cowles Foundation Discussion Paper No. 2203R.10.2139/ssrn.3548336Suche in Google Scholar

Bonatti, A., and G. Cisternas. 2020. “Consumer Scores and Price Discrimination.” The Review of Economic Studies 87 (2): 750–91. https://doi.org/10.1093/restud/rdz046.Suche in Google Scholar

Bos, I., and D. Vermeulen. 2022. “On the Microfoundation of Linear Oligopoly Demand.” The B.E. Journal of Theoretical Economics 22 (1): 1–15. https://doi.org/10.1515/bejte-2019-0114.Suche in Google Scholar

Bounie, D., A. Dubus, and P. Waelbroeck. 2021. “Selling Strategic Information in Digital Competitive Markets.” The RAND Journal of Economics 52 (2): 283–313. https://doi.org/10.1111/1756-2171.12369.Suche in Google Scholar

Chamley, C. P. 2004. Rational Herds: Economic Models of Social Learning. Cambridge: Cambridge University Press.10.1017/CBO9780511616372Suche in Google Scholar

Clarke, R. N. 1983. “Collusion and the Incentives for Information Sharing.” The Bell Journal of Economics: 383–94. https://doi.org/10.2307/3003640.Suche in Google Scholar

Clavorà Braulin, F. 2021. “The Effects of Personal Information on Competition: Consumer Privacy and Partial Price Discrimination.” In ZEW-Centre for European Economic Research Discussion Paper (21-007).10.2139/ssrn.3783657Suche in Google Scholar

Clavorà Braulin, F., and T. Valletti. 2016. “Selling Customer Information to Competing Firms.” Economics Letters 149: 10–4. https://doi.org/10.1016/j.econlet.2016.10.005.Suche in Google Scholar

De Corniere, A., and G. Taylor. 2019. “A Model of Biased Intermediation.” The RAND Journal of Economics 50 (4): 854–82. https://doi.org/10.1111/1756-2171.12298.Suche in Google Scholar

Dixit, A. 1979. “A Model of Duopoly Suggesting a Theory of Entry Barriers.” The Bell Journal of Economics 10 (1): 20–32. https://doi.org/10.2307/3003317.Suche in Google Scholar

Fried, D. 1984. “Incentives for Information Production and Disclosure in a Duopolistic Environment.” Quarterly Journal of Economics 99 (2): 367–81. https://doi.org/10.2307/1885531.Suche in Google Scholar

Fudenberg, D., and M. Villas-Boas. 2012. “Price Discrimination in the Digital Economy.” In The Oxford Handbook of the Digital Economy.10.1093/oxfordhb/9780195397840.013.0010Suche in Google Scholar

Gal-Or, E. 1985. “Information Sharing in Oligopoly.” Econometrica 53 (2): 329–43. https://doi.org/10.2307/1911239.Suche in Google Scholar

Gu, Y., L. Madio, and C. Reggiani. 2019. “Data Brokers Co-opetition.” In CESifo Working Paper No. 7523.10.2139/ssrn.3343854Suche in Google Scholar

Hotelling, H. 1929. “Stability in Competition.” The Economic Journal 39 (153): 41–57. https://doi.org/10.2307/2224214.Suche in Google Scholar

Li, L. 1985. “Cournot Oligopoly with Information Sharing.” The RAND Journal of Economics 16 (4): 521–36. https://doi.org/10.2307/2555510.Suche in Google Scholar

Liu, Q., and K. Serfes. 2006. “Customer Information Sharing Among Rival Firms.” European Economic Review 50 (6): 1571–600. https://doi.org/10.1016/j.euroecorev.2005.03.004.Suche in Google Scholar

MacKay, D. J. 2003. Information Theory, Inference and Learning Algorithms. Cambridge: Cambridge University Press.Suche in Google Scholar

Montes, R., W. Sand-Zantman, and T. Valletti. 2019. “The Value of Personal Information in Online Markets with Endogenous Privacy.” Management Science 65 (3): 1342–62. https://doi.org/10.1287/mnsc.2017.2989.Suche in Google Scholar

Raith, M. 1996. “A General Model of Information Sharing in Oligopoly.” Journal of Economic Theory 71 (1): 260–88. https://doi.org/10.1006/jeth.1996.0117.Suche in Google Scholar

Salop, S. C. 1979. “Monopolistic Competition with outside Goods.” The Bell Journal of Economics 10 (1): 141–56. https://doi.org/10.2307/3003323.Suche in Google Scholar

Shapiro, C. 1986. “Exchange of Cost Information in Oligopoly.” The Review of Economic Studies 53 (3): 433–46. https://doi.org/10.2307/2297638.Suche in Google Scholar

Shapley, L., and M. Shubik. 1969. “Price Strategy Oligopoly with Product Variation.” Kyklos 22 (1): 30–44. https://doi.org/10.1111/j.1467-6435.1969.tb02520.x.Suche in Google Scholar

Shen, Q., and M. Villas-Boas. 2018. “Behavior-based Advertising.” Management Science 64 (5): 2047–64. https://doi.org/10.1287/mnsc.2016.2719.Suche in Google Scholar

Shiller, B. R. 2014. First-degree Price Discrimination Using Big Data. Brandeis: Brandeis Univ., Department of Economics.Suche in Google Scholar

Shy, O., and R. Stenbacka. 2016. “Customer Privacy and Competition.” Journal of Economics and Management Strategy 25 (3): 539–62. https://doi.org/10.1111/jems.12157.Suche in Google Scholar

Singh, N., and X. Vives. 1984. “Price and Quantity Competition in a Differentiated Duopoly.” The RAND Journal of Economics 15 (4): 546–54. https://doi.org/10.2307/2555525.Suche in Google Scholar

Taylor, C., and L. Wagman. 2014. “Consumer Privacy in Oligopolistic Markets: Winners, Losers, and Welfare.” International Journal of Industrial Organization 34: 80–4. https://doi.org/10.1016/j.ijindorg.2014.02.010.Suche in Google Scholar

Vives, X. 1984. “Duopoly Information Equilibrium: Cournot and Bertrand.” Journal of Economic Theory 34 (1): 71–94. https://doi.org/10.1016/0022-0531(84)90162-5.Suche in Google Scholar

Vives, X. 1990. “Trade Association Disclosure Rules, Incentives to Share Information, and Welfare.” The RAND Journal of Economics 21 (3). https://doi.org/10.2307/2555617.Suche in Google Scholar

Vives, X. 1999. Oligopoly Pricing: Old Ideas and New Tools. Boston: MIT press.Suche in Google Scholar

Westenbroek, T., R. Dong, L. J. Ratliff, and S. S. Sastry. 2020. “Competitive Statistical Estimation with Strategic Data Sources.” IEEE Transactions on Automatic Control 65 (4): 1537–51. https://doi.org/10.1109/tac.2019.2922190.Suche in Google Scholar
Received: 2021-07-01
Revised: 2022-03-28
Accepted: 2022-05-23
Published Online: 2022-06-02

© 2022 Walter de Gruyter GmbH, Berlin/Boston

Artikel in diesem Heft

  1. Frontmatter
  2. Research Articles
  3. Duty to Read vs Duty to Disclose Fine Print. Does the Market Structure Matter?
  4. Cobb-Douglas Preferences and Pollution in a Bilateral Oligopoly Market
  5. Epsilon-Efficiency in a Dynamic Partnership with Adverse Selection and Moral Hazard
  6. Management Turnover, Strategic Ambiguity and Supply Incentives
  7. Uninformed Bidding in Sequential Auctions
  8. Arrowian Social Equilibrium: Indecisiveness, Influence and Rational Social Choices under Majority Rule
  9. Family Ties and Corruption
  10. Social Efficiency of Entry in a Vertical Structure with Third Degree Price Discrimination
  11. Insufficient Entry and Consumer Search
  12. Quality Competition and Market-Share Leadership in Network Industries
  13. The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV
  14. Redistributive Unemployment Benefit and Taxation
  15. Constrained Persuasion with Private Information
  16. A Dynamic Graph Model of Strategy Learning for Predicting Human Behavior in Repeated Games
  17. Relative Income Concerns, Dismissal, and the Use of Pay-for-Performance
  18. Delegation in Vertical Relationships: The Role of Reciprocity
  19. Step by Step Innovation without Mutually Exclusive Patenting: Implications for the Inverted U
  20. Data and Competitive Markets: Some Notes on Competition, Concentration and Welfare
  21. Notes
  22. Optimality of a Linear Decision Rule in Discrete Time AK Model
  23. Equilibrium Pricing under Concave Advertising Costs
https://doi.org/10.1515/bejte-2021-0087
Schlagwörter für diesen Artikel
data; data exchange; linear demand; consumer targeting; competitive markets

Artikel in diesem Heft

  1. Frontmatter
  2. Research Articles
  3. Duty to Read vs Duty to Disclose Fine Print. Does the Market Structure Matter?
  4. Cobb-Douglas Preferences and Pollution in a Bilateral Oligopoly Market
  5. Epsilon-Efficiency in a Dynamic Partnership with Adverse Selection and Moral Hazard
  6. Management Turnover, Strategic Ambiguity and Supply Incentives
  7. Uninformed Bidding in Sequential Auctions
  8. Arrowian Social Equilibrium: Indecisiveness, Influence and Rational Social Choices under Majority Rule
  9. Family Ties and Corruption
  10. Social Efficiency of Entry in a Vertical Structure with Third Degree Price Discrimination
  11. Insufficient Entry and Consumer Search
  12. Quality Competition and Market-Share Leadership in Network Industries
  13. The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV
  14. Redistributive Unemployment Benefit and Taxation
  15. Constrained Persuasion with Private Information
  16. A Dynamic Graph Model of Strategy Learning for Predicting Human Behavior in Repeated Games
  17. Relative Income Concerns, Dismissal, and the Use of Pay-for-Performance
  18. Delegation in Vertical Relationships: The Role of Reciprocity
  19. Step by Step Innovation without Mutually Exclusive Patenting: Implications for the Inverted U
  20. Data and Competitive Markets: Some Notes on Competition, Concentration and Welfare
  21. Notes
  22. Optimality of a Linear Decision Rule in Discrete Time AK Model
  23. Equilibrium Pricing under Concave Advertising Costs
Jetzt anmelden und 20% sparen
Institutioneller Zugang
Wie funktioniert Authentifizierung?
Haben Sie eine Idee, wie wir unsere Website verbessern können?
Bitte schreiben Sie uns.
© 2025 De Gruyter Brill
Heruntergeladen am 18.11.2025 von https://www.degruyterbrill.com/document/doi/10.1515/bejte-2021-0087/pdf?lang=de
Button zum nach oben scrollen