Abstract
“Data is worth real money” - until today, this seems to prove true for the providers of online services, but not necessarily for the people who often generate this data by using these services. However, recent technical developments and new business models may put users in the position to directly benefit from their personal data. Recently, several startups (e.g., Datacoup, Digi.me) as well as established firms (e.g., Telefónica’s O2 Get, Verimi), have introduced online services that allow users to collect, store, aggregate and commercially exploit their personal data generated by using online platforms like Facebook or Google Gmail. In particular, these Personal Data Markets aim at giving consumers the opportunity to share their personal data on a granular level on their own conditions. Furthermore, in the European Union, this is likely to be facilitated by the new right to data portability, that enables users to transfer personal data between Internet services.
In this vein, personal data markets are frequently promoted based on the claim that they balance the trade-off between facilitating firms’ access to valuable personal information and at the same time providing control and a sufficient compensation to data subjects, i.e., the users. However, the impact on online platforms who originally generate this data as a byproduct of free-of-charge online services remains unclear. On these platforms, usage intensity and, thus, data provision is driven by service quality. Yet, from the Intellectual Property Rights (IPR) literature, it is a well-known result that free-riding on an intangible non-copyrightable product, might negatively affect a firm’s incentives to invest in its creation. Therefore, empowering users to share and monetize personal data on their own may also entail detrimental effects to themselves. Moreover, a lower quality and less usage data may also be harmful to other market participants, such as advertisers.
Therefore, several research questions emerge with respect to the market impact of these services, the necessary legal requirements as well as the policy implications that stem from such Personal Data Markets. Yet, to date, research on these issues, despite their practical relevance, is scarce. Therefore, our study aims at providing an in-depth analysis of the economic mechanics of Personal Data Markets and their effects on the online ecosystem. More specifically, we consider a game-theoretic model of two Internet platforms that monetize user data on a second market side (e.g., by the means of targeted advertising). Based on this setting, we investigate the effects of the Personal Data Markets on firms’ profits, consumer surplus and social welfare.
Consistent with the IPR literature, we find that when users are able to sell their personal data, a firm’s decreasing return on investment might discourage the firm to invest in service quality. However, we identify cases where the indirect subsidization of service usage through a positive price in the personal data market might countervail negative effects on investments due to free riding. Based on these results, we characterize the market conditions when Personal Data Markets are likely to benefit or hurt consumers, online platforms and advertisers.