Entry deterrence by exploiting economies of scope in data aggregation

TL;DR

This paper models how an incumbent in a data market uses economies of scope and exclusive access to deter or accommodate challengers, informing potential access regulation policies.

Contribution

It introduces a strategic model showing how economies of scope influence entry deterrence and suggests regulatory implications for data access.

Findings

Incumbents deter entry when economies of scope are high and access costs are low.

Incumbents accommodate entry when access costs are high and economies of scope are low.

Regulatory policies can promote competition by increasing costs for exclusive data access.

Abstract

We model a market for data where an incumbent and a challenger compete for data from a producer. The incumbent has access to an exclusive data producer, and it uses this exclusive access, together with economies of scope in the aggregation of the data, as a strategy against the potential entry by the challenger. We assess the incumbent incentives to either deter or accommodate the entry of the challenger. We show that the incumbent will accommodate when the exclusive access is costly and when the economies of scope are low, and it will blockade or deter otherwise. The results would justify an access regulation that incentivizes the entry of the challenger, e.g., by increasing production costs for the exclusive data.