Selling Strategic Information in Digital Competitive Markets

Abstract

This article investigates the strategies of a data broker when selling information to one or to two competing firms that can price discriminate consumers. The data broker can strategically choose any segment of the consumer demand (the information structure) to sell to firms that implement third-degree price discrimination. We show that data broker's equilibrium profits are maximized when (1) information identifies consumers with the highest willingness to pay; (2) consumers with a low willingness to pay remain unidentified; and (3) the data broker sells two symmetrical information structures. The data broker therefore strategically sells partial information on consumers to soften competition between firms.Extending the baseline model, we prove that these results hold under first-degree price discrimination. * We would like to thank

Market Segmentation Through Information

“…Our paper also relates to a burgeoning literature on markets for information broadly conceived-the transaction, pricing, and design of information (see, e.g., Admati and Pfleiderer (1986), Lizzeri (1999), Taylor (2004) Calzolari and Pavan (2006), Bergemann and Bonatti (2015), Bergemann et al (2018), Acemoglu et al (2019), , Fainmesser and Galeotti (2019), Montes et al (2019), Jones and Tonetti (2020), Bounie et al (2020); also see for a summary). Perhaps the closest paper to ours is Bounie et al (2018). Like us, they consider a data intermediary choosing what information to reveal to firms about consumer valuations.…”

“…firm to sell to with lower value consumers it is inefficient for the firm to sell to. This information structure requires pooling consumers over disjoint intervals of the valuation space and so is ruled out by the exogenous restriction of Bounie et al (2018) and it is, to the best of our knowledge, novel in the literature.…”

Data Intermediaries and Selling Mechanisms for Customized Consumer Information

“…This assumption is common in the literature. See for instance Bounie et al (2018) or Montes et al (2018).…”

“…11 Previous research has assumed that the data intermediary sells all available information (Montes et al, 2018). Bounie et al (2018) show that this assumption is not valid.…”

Data Brokers Co-Opetition

“…For example, Clavorà Braulin and Valletti (2016) and Montes et al (2019) show that a data broker always pro-vides data exclusively to one of the downstream competitors. Belleflamme et al (2017) and Bounie et al (2018), instead, find that a data broker serves both competing firms, either by selling data with different precision or by ensuring some market segmentation. Gu et al (2019) consider how access to a list of customers leads to price manipulation and affects the incentive to act as a price leader.…”