Regulating data sales: The role of data selling mechanisms

Abstract

We analyze the effects of different data selling mechanisms of a monopolistic Data Broker (DB) who sells consumer data to firms in a downstream market with free entry, where data can be used for consumer price discrimination. We consider three possible data selling mechanisms, namely auctions with and without reserve prices, and Take-It-Or-Leave-It offers, which exhibit decreasing levels of DB’s bargaining power towards firms. We highlight the emergence of an entry barrier effect in the downstream market, regardless of the data selling mechanism. Moreover, we show that the auction-based selling mechanisms, and particularly the auction with reserve prices, induce the DB to sell the lowest quantity of data, implying the lowest level of consumer surplus. Conversely, under TIOLI, the DB floods the market for data, selling to all firms data partitions that overlap over subsets of consumers. Imposing the sale of non-overlapping partitions to all firms would improve consumer surplus and welfare.