Discussion paper
DP19792 What's on the Menu? Consumption Externalities & Product Quality
We consider the problem of a monopolistic platform who offers consumers a menu of products differing in their quality, specifically, their level of data commercialization. Because of network effects, the adoption of these products is subject to equilibrium multiplicity. To handle it, we introduce a notion of focality that generalizes existing notions and is capable of accommodating menus. We find that the platform's optimal menu is greatly affected by its level of focality, with a nonfocal platform charging lower prices, but commercializing more consumer data. This is because the nonfocal platform relies on consumers with low commercialization costs to build its network. We also discuss optimal regulatory interventions.
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