LED Seminar

Shiva Shekhar (Tilburg School of Economics and Management)

The Strategic Value of Data Sharing

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Abstract

In this paper, we consider competition across two markets where data collected in each market adds value in the other market. A multiproduct firm (1) is a monopolist in market A, and is also active in a second market B where it competes with an established (specialist) firm 2. Firm 1 leverages its presence in both markets to gain a data advantage. In such a market structure, we study the incentive of the specialist firm to share data with its dominant competitor and its implications on profitability, competition and consumer welfare. Our main contribution is to show that the smaller firm has incentives to share data with the dominant firm even for free. This data altruism acts as a strategic device employed by the small firm to lower the intensity of competition by transforming a competitor into a co-opetitor by creating "co-dependence". Specifically, by sharing value-enhancing data, the specialist firm makes the dominant firm a stakeholder in the valuable data collected by the specialist and hence also in its market share. This lowers the competitive intensity of the dominant firm in the competitive market B which enhances (demand and hence also) data collection by the smaller firm. This value creation arising from data altruism substitutes value addition through costly investments made by the dominant firm. A direct managerial implication of this result is that data altruism by the specialist firm can be a win-win outcome for both firms. While data altruism increases market share of the smaller firm, it is not consumer welfare enhancing as it lowers competition (in the secondary market). This result has clear policy implications.