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

Author

Listed:
  • Doh-Shin Jeon

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Domenico Menicucci

    (UniFI - Università degli Studi di Firenze = University of Florence = Université de Florence)

Abstract

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.

Suggested Citation

  • Doh-Shin Jeon & Domenico Menicucci, 2023. "Data portability and competition: Can data portability increase both consumer surplus and profits?," Post-Print hal-04216623, HAL.
    • Handle: RePEc:hal:journl:hal-04216623
    DOI: 10.1007/s10657-023-09774-9
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    References listed on IDEAS

    as
    1. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    2. Giovannetti, Emanuele & Siciliani, Paolo, 2023. "Platform Competition and Incumbency Advantage under Heterogeneous Lock-in effects," Information Economics and Policy, Elsevier, vol. 63(C).
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    11. Jay Pil Choi & Doh-Shin Jeon, 2021. "A Leverage Theory of Tying in Two-Sided Markets with Nonnegative Price Constraints," American Economic Journal: Microeconomics, American Economic Association, vol. 13(1), pages 283-337, February.
    12. Mark J. Tremblay, 2019. "Platform Competition and Endogenous Switching Costs," Journal of Industry, Competition and Trade, Springer, vol. 19(4), pages 537-559, December.
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    16. Doh-Shin Jeon & Domenico Menicucci & Nikrooz Nasr, 2023. "Compatibility Choices, Switching Costs, and Data Portability," American Economic Journal: Microeconomics, American Economic Association, vol. 15(1), pages 30-73, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Data portability; Switching cost; Non-negative pricing constraint; Freebies; Pass-through;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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