Data portability and competition: Can data portability increase both consumer surplus and profits?

Résumé

We study how data portability affects consumer surplus and firms’ profits in a two-period model with a switching cost where two firms compete under a non-negative pricing constraint. The firms can circumvent the constraint by tying another complementary free service (called ”freebies”) with the original service. We consider a general framework of incomplete pass-through of freebies into consumer benefit, which includes the two extreme cases of no pass-through and full pass-through as special cases. Regarding the effect on consumer surplus, data portability involves a trade-off between intensifying competition after consumer lock-in and reducing rent dissipation before consumer lock-in. We find that for an intermediate range of pass-through rates, data portability increases both consumer surplus and profits.

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Codes JEL

Référence

Doh-Shin Jeon et Domenico Menicucci, « Data portability and competition: Can data portability increase both consumer surplus and profits? », European Journal of Law and Economics, juillet 2023.