This CERRE report analyses the processes that turn data into economic value for online search, e-commerce and media platforms. It concludes that forcing data sharing through policy intervention would not prevent dominant incumbents from continuing to benefit economically from greater access to data over new entrants. Instead, policy makers should focus on enabling niche entry, niche growth and a level playing field for competitors in new and emerging markets.
Data play a central role in the business models that shape competition and innovation in digital markets. As dominant providers of online services collect ever more user data, they generate data-driven network effects. They can then improve their services faster, and venture faster into related markets than competitors with less data, thereby raising entry barriers for innovative start-ups.
The authors, Sally Broughton Micova (CERRE & University of East Anglia), Jan Krämer (CERRE & University of Passau) and Daniel Schnurr (University of Passau), have analysed processes that transform data into economic value for online search, e-commerce and media platforms. They find that in each case, more data, especially on user behaviour, gradually improves the quality of the service, thereby generating high economic benefits for the firm.
The authors find that data-driven network effects can nevertheless be a source of efficiency which can ultimately benefit consumers. Even if some data is shared through policy intervention, dominant incumbents will continue to benefit economically and competitively from greater access to data over new entrants.
“We conclude that it is neither realistic nor desirable to try to break data-driven network effects through policy intervention. Instead, we would strongly encourage policy makers to focus on enabling niche entry and niche growth. To do so, they should facilitate the sharing of behavioural user data gathered by the dominant firm with other firms.”
The authors provide policy recommendations for data access remedies to safeguard competition, innovation and the openness of the digital ecosystem:
1. Remedies that achieve a more level playing field in the digital economy by breaking the data-driven network effects of data-rich incumbents should be entertained as a last resort and only under specific conditions.
2. Policy makers should foster data sharing on two levels to strike a balance between consumers’ privacy, competition and innovation. They should require the sharing of aggregated and anonymised raw user data in bulk, after a careful review and on a case-by-case basis. They should also facilitate the sharing of detailed raw user data through improved data portability, based on individual users’ consent. Bulk sharing of raw user data should be limited to data that was collected as a by-product of the incumbent’s dominant user-facing service, such as search logs, in order to maintain incentives for innovation and data collection. The main challenge will be to balance privacy concerns with maintaining enough detailed data to ensure it is of value to third-parties.
3. Dominant firms should also be obliged to allow consumers to port their raw data to another provider continuously and in real time. Privacy concerns can then be overcome and the shared user profiles can be more detailed than under bulk sharing. In concert with bulk-sharing, data portability can be a valuable source for attaining both detailed and representative data sets.