Data-Driven Envelopment with Privacy-Policy Tying

Abstract

We present a theory of monopoly protection by means of entry in adjacent markets that have a common customer base (i.e., envelopment). A firm dominant in its market enters a data rich secondary market and engages in predatory pricing and privacy-policy tying. We define the latter as conditioning service provision to the subscription of a privacy-policy that allows bundling of user data across all sources. Acquiring data from the secondary market confers an advantage in the primary market that shields the dominant firm from entry, thus harming consumers. We discuss potential remedies, including data unbundling, sharing and portability.