Essays on regulation of platform markets/ Gaurav Jakhu

Thesis (Ph.D.) - Indian Statistical Institute, 2019

Includes bibliography

Introduction -- Data Sharing in Platform Markets -- Regulation of Consumer Data: Privacy and Welfare -- Bundling in Platform Markets in the Presence of Data Advantage -- Dilemma in Antitrust Enforcement: How Use of Economics can Guide Enforcement Rules in Multi-Sided Markets

Guided by Prof. Prabal Roy Chowdhury

The digital transformation and rise of online platforms have improved consumer welfare and business opportunities through better consumer choice and increased efficiency in trade. In this light, the authorities must weigh the concerns regarding the concentration of market power in the hands of a few large firms against the substantial benefits that they offer. In particular, user data is seen as a competitive resource in digital markets. In addition to better matches and information learning, activities of online firms in data collection and exploitation have raised concerns about erosion in user privacy and abuse of market power in digital markets. This raises the question of whether an intervention to reduce the data advantage of firms will improve or reduce social gains. In this light, this thesis analyzes the competitive and welfare effects of a specific form of data advantage arising from sharing consumer data among affiliated and unaffiliated firms. In addition, it also examines the competitive framework that should be part of antitrust intervention in such markets.
In doing so, Chapter 2 analyses the strategic and welfare impact of voluntary data sharing in platform markets. It is shown that, under data sharing, the upstream firm can invest higher in data collection, especially in markets with lower improvement in its advertising targeting rates. However, social welfare rises. Moreover, the exclusive technology sharing regime paradoxically improves the welfare of all users. Chapter 3 examines the competitive and welfare implications of alternative regulatory approaches to protect privacy namely i) restricting access to data owned by the firm’s subsidiaries, and ii) empowering users to control data collection activities. It is shown that the former is always welfare reducing in the absence of any change in privacy level. Whereas, the latter can enhance user and social welfare in markets with large advertising targeting rates. Chapter 4 examines the private and social incentives to bundle when one firm can collect data regarding users from another market. It is shown that bundling is not profitable when investment in data collection and adverivtising targeting rate are small. Moreover, user welfare and social welfare can move in opposite direction when both data collection and targeting rate are large, leading to a policy dilemma. Chapter 5 is a policy paper that discusses the nature of antitrust enforcement required in platform markets. It argues that the authorities should not pursue an ex-ante agenda and exclusively target objectionable activities that hurt consumers (not protecting some competitors) leaving other pro-competitive conducts that benefit consumers unregulated.
As a result, the theoretical models developed in the thesis contribute to the literature on platform markets by analyzing data sharing among firms. In the literature, so far, the current focus is on understanding the data collection on a platform. However, in our models, one firm can benefit from the functioning of another firm in a different market through data sharing. In addition, we consider privacy implications when data is shared by highlighting the mechanism that affects the privacy choice of a firm in an interconnected system. On the policy front, the thesis contributes to the ongoing debate on protecting user privacy and establishing a fair and competitive environment in digital markets.