Abstract
AbstractThis article studies tech mergers that involve a large volume of consumer data. The merger links the markets for data collection and data application through a consumption synergy. The merger‐specific efficiency gains exist in the market for data application due to the consumption synergy and data‐enabled personalization. Prices fall in the market for data collection but generally rise in the market for data application as the efficiency gains are extracted away through personalized pricing. When the consumption synergy is large enough, the merger can result in monopolization of both markets. We discuss policy implications including various merger remedies.
Highlights
Remarkable advances in digital computing technologies, underpinned by information and communication technologies, are making fundamental changes to virtually every part of the modern world
Due to strong network effects and data-powered economies of scale and scope that are most prominent in the digital economy, data can contribute to market tipping and entry barriers through a positive feedback loop: firms with larger data sets can offer better-targeted products thanks to data-enabled learning, thereby attracting more customers, which leads to more data, creating a self-reinforcing loop
16https://www.statista.com/statistics/1092869/global-digital-health-market-size-forecast/ 17In the online appendix, we provide a more detailed account of how the healthcare sector is transformed by big data and personalization
Summary
Remarkable advances in digital computing technologies, underpinned by information and communication technologies, are making fundamental changes to virtually every part of the modern world. Data sharing reduces the value of data to firm C as it allows the competitor to use personalization This softens competition and hurts consumers in market B, but benefits consumers in market A. We consider the effect of prohibiting search discrimination in market A, which will allow targeted consumers access to firm C’s standard product. This can lead to a collusive outcome in which firm C can extract maximum surplus from targeted consumers. Approving Apple’s expansion into the digital health market following the Google/Fitbit merger will have pro-competitive effects while not sacrificing the potential benefits from data-enabled personalization. The online appendix contains additional proofs, a brief account of Google’s interest in and expansion into health care, and some information on how big data and personalization are affecting the health industry
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