Selling Data to a Competitor (Extended Abstract)

TL;DR

This paper analyzes data selling strategies between firms, revealing mechanisms that can improve profits for both firms and consumers, and proposing consumer opt-in as a tool to promote Pareto improvements.

Contribution

It identifies profit-maximizing data selling mechanisms and introduces Pareto-improving mechanisms that benefit both firms and consumers.

Findings

Selling all consumer data may reduce profits.

Selective data selling can benefit both firms.

Consumer opt-in encourages Pareto improvements.

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.