The Economics of Data

Abstract

We analyze the economic consequences of selling consumer data to oligopoly producers. Without data sales, producers keep secret their private consumer data, leading to efficiency loss and in some cases, to a prisoners dilemma for producers. In the presence of an independent data vendor who maximizes its own profits with smart contracts, data sales causes producers to effectively share their consumer data in equilibrium, thereby improving total surplus. This setting is consistent with a situation in which data is owned by consumers and analyzing such a setting provides a way to quantify the economic value of consumer data. When data is owned by producers, a data vendor a la a trade association is likely to maximize the total profits of producers, and its presence can address the prisoners dilemma for producers. Our analysis provides implications for the debates about data ownership and privacy.