Working Paper: CEPR ID: DP17544
Authors: Dirk Bergemann; Alessandro Bonatti
Abstract: We analyze digital markets where a monopolist platform uses data to match multiproduct sellers with heterogeneous consumers who can purchase both on and off the platform. The platform sells targeted ads to sellers that recommend their products to consumers and reveals information to consumers about their values. The revenue-optimal mechanism is a managed advertising campaign that matches products and preferences efficiently. In equilibrium, sellers offer higher qualities at lower unit prices on than off the platform. Privacy-respecting data-governance rules such as organic search results or federated learning can lead to welfare gains for consumers.
Keywords: data privacy; competition; personal data
JEL Codes: D18; D44; D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| data governance (G38) | consumer welfare (D69) |
| monopolist platform's use of data (D42) | efficient product and preference matching (C78) |
| efficient product and preference matching (C78) | seller quality (L15) |
| efficient product and preference matching (C78) | prices (P22) |
| privacy-respecting data governance rules (G38) | consumer surplus (D46) |
| platform's information advantage (D85) | consumer shopping behavior (D19) |
| introduction of organic links (Y20) | market competition (L13) |
| introduction of organic links (Y20) | prices (P22) |
| information transparency (D83) | market dynamics (D49) |