Working paper

Towards efficient information sharing in network markets

In this paper, we turn our attention to market failure due to information asymmetry between platforms and their users and between competing platforms.

Publishing date
10 November 2021

Our paper has benefitted from inspiring discussions with Erik Brynjolfsson, Luis Cabral, Rebecca Christie, Maria Demertzis, Erika Douglas, Nestor Duch-Brown, Justus Haucap, Jan Krämer , Maciej Sobolewski, Sebastian Steffen, Tommaso Valletti, Reinhilde Veugelers, Guntram Wolff as well
as participants at Ascola 2021, Yale University’s Big Tech and Antitrust Conference 2020, OECD Competition Committee Hearing Dec. 2020, Bruegel, Digital Markets Competition Forum at Copenhagen Business School 16 June 2021, and the Boston University Platform Summit 27 May 2021. Georgios Petropoulos gratefully acknowledges financial support from the European Union’s Horizon 2020 research and innovation programme under Marie Sklodowska-Curie grant No. 799093. Bertin Martens acknowledges that the views and opinions expressed in this paper do not necessarily reflect those of the Joint Research Centre or the European Commission.

Digital platforms facilitate interactions between consumers and merchants that allow collection of profiling information, which drives innovation and welfare. Private incentives, however, lead to information asymmetries resulting in market failures both on-platform, among merchants, and off-platform, among competing platforms. This paper develops two product-differentiation models to study private and social incentives to share information within and between platforms. We show that there is scope for ex-ante regulation of mandatory data sharing that improves social welfare better than competing interventions, such as barring entry, break-up, forced divestiture or limiting recommendation steering. These alternate proposals do not make efficient use of information. We argue that the location of data access matters and develop a regulatory framework that introduces a new data right for platform users, the in-situ data right, which is associated with positive welfare gains. By construction, this right enables effective sharing of information together with its context, without reducing the value created by network effects. It also enables regulatory oversight but limits data privacy leakages. We discuss crucial elements of its implementation in order to achieve innovation-friendly and competitive digital markets.

Recommended citation:
Martens, B., G. Parker, G. Petropoulos and M. Van Alstyne (2021) ‘Towards efficient information sharing in network markets’, Working Paper 12/2021, Bruegel

About the authors

  • Georgios Petropoulos

    Georgios Petropoulos joined Bruegel as a visiting fellow in November 2015, and he has been a resident fellow since April 2016. Since March 2022, he has been a non-resident fellow. Since March 2019, he is a Marie Curie Skłodowska Research Fellow at MIT and Bruegel and post-doctoral fellow at the MIT Initiative on the Digital Economy. Georgios’ research focuses on the implications of digital technologies on innovation, competition policy and labour markets. He is currently studying how we should regulate digital platforms, what the relationship between big data and market competition is as well as how the adoption of robots and information technologies affect labour markets and firms’ market returns. He holds a bachelors degree in Physics, master’s degrees in mathematical economics and econometrics and a PhD degree in Economics. He has also studied Astrophysics at a Master's level.

  • Bertin Martens

    Bertin Martens is a Visiting fellow at Bruegel. He has been working on digital economy issues, including e-commerce, geo-blocking, digital copyright and media, online platforms and data markets and regulation, as senior economist at the Joint Research Centre (Seville) of the European Commission, for more than a decade until April 2022.  Prior to that, he was deputy chief economist for trade policy at the European Commission, and held various other assignments in the international economic policy domain.  He is currently a non-resident research fellow at the Tilburg Law & Economics Centre (TILEC) at Tilburg University (Netherlands).  

    His current research interests focus on economic and regulatory issues in digital data markets and online platforms, the impact of digital technology on institutions in society and, more broadly, the long-term evolution of knowledge accumulation and transmission systems in human societies.  Institutions are tools to organise information flows.  When digital technologies change information costs and distribution channels, institutional and organisational borderlines will shift.  

    He holds a PhD in economics from the Free University of Brussels.  

  • Marshall Van Alstyne

    Marshall Van Alstyne is one of the world’s foremost experts on platform strategies and network business models. He is a frequent speaker, board level advisor, and consultant to both startups and global firms.
    His research has received numerous academic awards and appeared in top journals such as Science, Nature, and Harvard Business Review. Interviews appear regularly across Bloomberg, the New York Times, the Wall Street Journal and National Public Radio. Prof. Van Alstyne is a research scientist at MIT, tenured professor at Boston University, and graduate of Yale and MIT. His consulting includes such firms as British Telecom, Cisco, Haier, IBM, Intel, Microsoft, Pearson, and SAP. He holds multiple patents; and was among the first to measure individual dollar output from social networks and IT. His coauthored work, with Geoffrey Parker, of two-sided markets and platforms as inverted firms are now taught and applied worldwide.

  • Geoffrey Parker

    Geoffrey Parker is a professor of engineering at Dartmouth College where he also serves as Director of the Master of Engineering Management Program. In addition, he is a research fellow at MIT’s Initiative for the Digital Economy where he leads platform industry research studies and co-chairs the annual MIT Platform Strategy Summit. Prior to joining Dartmouth, Parker was a professor of business at Tulane University. He received a B.S.E. from Princeton and M.S. and Ph.D. from MIT. Parker has made significant contributions to the field of network economics and strategy as co-developer of the theory of “two-sided” markets. He is co-author of the book “Platform Revolution.” His current research includes studies of platform business strategy, data governance, smart cities and energy systems, financial services, and electronic healthcare record systems. Parker’s research has been funded by grants from the National Science Foundation, the Department of Energy, the states of Louisiana and New York, and numerous corporations.  He serves or has served as department editor and associate editor at multiple journals and as a National Science Foundation panelist. Parker won the Thinkers50 2019 Digital Thinking Award, along with Marshall Van Alstyne, for the concepts of the inverted firm, two-sided markets, and how firms can adapt and thrive in a platform economy. Parker is a frequent keynote speaker and advises senior leaders on their organizations’ platform strategies. Before attending MIT, he held positions in engineering and finance at GE Semiconductor and GE Healthcare. Additional information can be found at ggparker.net, @g2parker, and Google Scholar.

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