Pareto-Improving Data-Sharing

TL;DR

This paper analyzes how different data-sharing strategies between firms can improve both profits and consumer welfare, identifying mechanisms that are Pareto-improving and optimizing for each.

Contribution

It introduces data-sharing mechanisms that can simultaneously enhance firm profits and consumer welfare, highlighting the benefits of selective data sharing.

Findings

Selective sharing can be Pareto-improving for firms and consumers

Indiscriminate sharing reduces firm profits due to increased competition

Identifies mechanisms that maximize profits and consumer welfare

Abstract

We study the effects of data sharing between firms on prices, profits, and consumer welfare. Although indiscriminate sharing of consumer data decreases firm profits due to the subsequent increase in competition, selective sharing can be beneficial. We show that there are data-sharing mechanisms that are strictly Pareto-improving, simultaneously increasing firm profits and consumer welfare. Within the class of Pareto-improving mechanisms, we identify one that maximizes firm profits and one that maximizes consumer welfare.