Digital monopolies: Privacy protection or price regulation?
S Loertscher, LM Marx
International Journal of Industrial Organization | Elsevier | Published : 2020
Increasing returns to scale in data gathering and processing give rise to a new form of monopoly, referred to here as digital monopoly. Digital monopolies create new challenges for regulators and antitrust authorities. We address two in this paper: market power arising from improved match values and from reduced privacy. The digital monopoly's profit and social surplus always increase as privacy decreases. However, consumer surplus is non-monotone in privacy. Without privacy, the match value is perfect but completely extracted by the digital monopoly. In contrast, as privacy goes to infinity, match values and social surplus go to zero. With regulated prices, consumer surplus is maximized wit..View full abstract
Awarded by Australian Research Council
We thank David Byrne, Curt Taylor, Peter Taylor, participants at the JFTC's 18th CPRC International Symposium on Data Concentration on Digital Markets and Competition Policy, 2019 Workshop on Digital Economy and Industrial Organisation at Monash University, and 2019 Competition Economists Network Meeting for useful comments and fruitful discussions. Bing Liu provided excellent research assistance. We gratefully acknowledge support from the Samuel and June Hordern Endowment, a University of Melbourne Faculty of Business & Economics Eminent Research Scholar Grant, and the Australian Research Council under Discovery Project Grant DP200103574