Business models, consumer data and privacy in platform markets

Abstract

We examine the drivers of the accuracy of the consumer information collected by a digital platform. In an environment where consumers mind their privacy, we compare a pure-intermediation model, where the platform plays a matching function only, by connecting buyers and sellers, with a hybrid business model, where the platform also introduces its private label to compete with third-party sellers. We show that the platform’s incentive to collect demand information in the two models depends on the intensity of intra-platform competition and on its bargaining power vis-à-vis third-party sellers. When end-users perceive the platform’s private label and the third-party sellers’ products as relatively close substitutes (strong intra-platform competition) and the intermediary has a strong bargaining position in the negotiation with the sellers, it tends to acquire less accurate information under the hybrid model than in the pure-intermediation model, at the benefit of consumer privacy. Otherwise, more information is acquired under the hybrid model. These results shed new light on the link between alternative business models, consumer privacy and information collection in the digital sector, and may help explaining why some platforms tend to protect more consumer privacy than others.