A data intermediary acquires signals from individual consumers regarding their preferences. The intermediary resells the information in a product market wherein firms and consumers tailor their choices to the demand data. The social dimension of the individual data—whereby a consumer's data are predictive of others' behavior—generates a data externality that can reduce the intermediary's cost of acquiring the information. The intermediary optimally preserves the privacy of consumers' identities if and only if doing so increases social surplus. This policy enables the intermediary to capture the total value of the information as the number of consumers becomes large.
We characterize the revenue-maximizing information structure in the second price auction. The seller faces a classic economic trade-o§: providing more information improves the e¢ - ciency of the allocation but also creates higher information rents for bidders. The information disclosure policy that maximizes the revenue of the seller is to fully reveal low values (where competition will be high) but to pool high values (where competition will be low). The size of the pool is determined by a critical quantile that is independent of the distribution of values and only dependent on the number of bidders. We discuss how this policy provides a rationale for conáation in digital advertising.
We analyze nonlinear pricing with finite information. We consider a multi-product environment where each buyer has preferences over a d-dimensional variety of goods. The seller is limited to offering a finite number n of d-dimensional choices. The limited menu reflects a finite communication capacity between the buyer and seller.
We identify necessary conditions that the optimal finite menu must satisfy, for either the socially efficient or the revenue-maximizing mechanism. These conditions require that information be bundled, or "quantized," optimally. We introduce vector quantization and establish that the losses due to finite menus converge to zero at a rate of 1/n2/d_ In the canonical model with one-dimensional products and preferences, this establishes that the loss resulting from using the n-item menu converges to zero at a rate proportional to 1 /n2 .
This is the fifth in a series of papers prepared by a collection of economists and policy experts in the United States, the UK, and the European Union who have studied, and are committed to the improvement of, competition in digital markets. Previous papers addressed consumer protection in online markets, regulating the market for general search services, the concepts of “fairness” and “contestability” as used in the Digital Markets Act, and the use of “equitable interoperability” as a “super tool” to restore and encourage competition in online markets.
Consider a market with identical firms offering a homogeneous good. For any given ex ante distribution of the price count (the number of firms from which a consumer obtains a quote), we derive a tight upper bound on the equilibrium distribution of sales prices. The bound holds across all models of firms’ common-prior higher-order beliefs about the price count, including the extreme cases of full information and no information. One implication of our results is that a small ex ante probability that the price count is equal to one can lead to a large increase in the expected price. The bound also applies in a large class of models where the price count distribution is endogenously determined.
As large amounts of data become available and can be communicated more easily and processed more effectively, information has come to play a central role for economic activity and welfare in our age. This essay overviews contributions to the industrial organization of information markets and nonmarkets, while attempting to maintain a balance between foundational frameworks and more recent developments. We start by reviewing mechanism-design approaches to modeling the trade of information. We then cover ratings, predictions, and recommender systems. We turn to forecasting contests, prediction markets, and other institutions designed for collecting and aggregating information from decentralized participants. Finally, we discuss science as a prototypical information nonmarket with participants who interact in a non-anonymous way to produce and disseminate information. We aim to familiarize the reader with the central notions and insights in this burgeoning literature and also point to some critical open questions that future research will have to address.
This paper is concerned with competition in digital platform markets where network effects are strong. As is widely acknowledged, these markets have an inherent tendency towards concentration, leaving consumers with little competition in the market. We explain how interoperability regulation can help stimulate competition in the market in a way that benefits consumers.
We analyze the use of the concepts of fairness and contestability in the Digital Markets Act (DMA) and propose formal definitions rooted in the economic analysis of digital markets as well as the goals of the proposed law. We discuss the implication of these concepts for innovation in digital markets.
This paper identifies a set of possible regulations that could be used both to make the search market more competitive and simultaneously ameliorate the harms flowing from Google’s current monopoly position. The purpose of this paper is to identify conceptual problems and solutions based on sound economic principles and to begin a discussion from which robust and specific policy recommendations can be drafted.
This is the sixth in a series of papers prepared by a collection of economists and policy experts in the United States, the UK, and the European Union who have studied, and are committed to the improvement of, competition in digital markets. Previous papers addressed consumer protection in online markets, regulating the market for general search services, the concepts of “fairness” and “contestability” as used in the Digital Markets Act, the use of “equitable interoperability” as a “super tool” to restore and encourage competition in online markets, and coherence between US and European approaches to digital regulation.