Towards Efficient Information Sharing in Network Markets

Abstract

This paper develops a Salop differentiation model to study private and social incentives to share information within a platform ecosystem, between a platform intermediary and its business users. Information sharing can help business users to make more efficient decisions around their market and product innovation strategies improving social welfare. However, private and social incentives for information sharing do not coincide when the platform intermediary is vertically integrated and competes directly with its business users in the upstream market of the platform market. So, there is a scope for an ex-ante regulation of mandatory data sharing. We argue that the location of data access matters and propose a regulatory framework that introduces a new data right for platform users, the in-situ data right, which is associated with positive welfare gains. By construction, this right enables effective information sharing, together with its context, without reducing the value created by network effects. We discuss crucial elements of its implementation in order to achieve innovation-friendly and competitive digital markets.