Data Scale: How Does Data Lead to Network Effects? - Part 7

Bethany Walsh

Sep 17, 2021

Data Sharing

Data sharing is another controversial topic, as it can reduce user engagement and enable users to switch to competitors’ platforms. There are two schools of thought. The first is that platforms are governance mechanism, that is, the data they generate can be identified as a common, non-competitive asset that companies need to operate in the digital market. Thus, to exclude the use of such assets would be to limit competition.

Another view is that from the perspective of the platform as market designer and regulator, data can be seen as a governance mechanism, that is, using data as an enhanced information tool to coordinate the participation and operation of agents on the platform. Data structures can have a significant impact on engagement, interaction types, and the quality and quantity of transactions on the platform.

The problem that needs to be considered is the opportunism when treating data as a public asset. In principle, treating data as a non-competitive good that must be shared with any company, which can improve market competition between large dominant platforms and smaller potential new competitors. However, a theoretical model reveals a possible downside: if potential competitors foresee a data-sharing policy, no one will be willing to invest in the “free” data in the first place.

Preliminary evidence suggests that suppliers of complementary goods can also manipulate product rankings through the access to user data, as to gain a competitive advantage over rival products. There should be a trade-off between complementary product suppliers using data mining on the basis of opportunism and allowing potential competitors access to user data and platform data to promote competition.

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