Data and Competition: A Simple Framework

Does enhanced access to data foster or hinder competition among firms? Using a competition‐in‐utility framework that encompasses many situations where firms use data, we model data as a revenue‐shifter and identify two opposite effects: a mark‐up effect according to which data induces firms to compete harder, and a surplus‐extraction effect. We provide conditions for data to be pro‐ or anti‐competitive, requiring neither knowledge of demand nor computation of equilibrium. We apply our results to situations where data is used to recommend products, monitor insuree behavior, price‐discriminate, or target advertising. We also revisit the issue of data and market structure.