Discussion paper

DP14225 Too Much Data: Prices and Inefficiencies in Data Markets

When a user shares her data with an online platform, she typically reveals relevant information
about other users. We model a data market in the presence of this type of externality in a setup
where one or multiple platforms estimate a user’s type with data they acquire from all users and
(some) users value their privacy. We demonstrate that the data externalities depress the price of
data because once a user’s information is leaked by others, she has less reason to protect her data
and privacy. These depressed prices lead to excessive data sharing. We characterize conditions
under which shutting down data markets improves (utilitarian) welfare. Competition between
platforms does not redress the problem of excessively low price for data and too much data sharing,
and may further reduce welfare. We propose a scheme based on mediated data-sharing that
improves efficiency.

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Citation

Acemoglu, D, A Makhdoumi, A Malekian and A Ozdaglar (2019), ‘DP14225 Too Much Data: Prices and Inefficiencies in Data Markets‘, CEPR Discussion Paper No. 14225. CEPR Press, Paris & London. https://cepr.org/publications/dp14225