Selling Data to a Competitor

TL;DR

This paper analyzes the strategic selling of consumer data to competitors, revealing mechanisms that can improve profits for firms while also increasing consumer welfare through Pareto improvements and consumer opt-in strategies.

Contribution

It introduces new data selling mechanisms that benefit both firms and consumers, and demonstrates how consumer opt-in can promote Pareto improvements.

Findings

Certain mechanisms increase both firm profits and consumer welfare.

Selling all consumer data may reduce total profits.

Consumer opt-in can incentivize firms to adopt Pareto-improving strategies.

Abstract

We study the costs and benefits of selling data to a competitor. Although selling all consumers' data may decrease total firm profits, there exist other selling mechanisms -- in which only some consumers' data is sold -- that render both firms better off. We identify the profit-maximizing mechanism, and show that the benefit to firms comes at a cost to consumers. We then construct Pareto-improving mechanisms, in which each consumers' welfare, as well as both firms' profits, increase. Finally, we show that consumer opt-in can serve as an instrument to induce firms to choose a Pareto-improving mechanism over a profit-maximizing one.