Standing on the Shoulders of Web Giants: The Economic Effects of Personal Data Brokers

Abstract

In several jurisdictions, like the European Union and California, consumers now have a legal right to port the data that a company has collected about them to another service. This has spurred the emergence of personal data brokers (PDBs), which offer consumers financial rewards for access to their personal data collected by large online content and service providers (CSPs). Using a game-theoretic model, we investigate how PDBs affect market outcomes in the data economy and under which conditions users will indeed benefit from them. Across several model variants, we find that in markets with a PDB two main equilibrium outcomes exist. First, a minimum income equilibrium can arise, where the PDB only pays a minimal reward, and the CSP lowers its service quality in the long run, leaving consumers worse off than without a PDB. Second, a positive income equilibrium can arise, where the PDB pays significant rewards to consumers, and the CSP’s quality may be higher or lower depending on the PDB's efficiency on the data market. Whether consumers are better off in this equilibrium depends on the relative strengths of three effects that we characterize formally and denote as competition effect, displacement effect, and appropriation effect. Consumers will only benefit from a PDB if it can sell their data efficiently; but in this case, the CSP will also demand a higher (non-zero) price for using its service. Thus, our results bear important managerial and policy implications for data-driven business models and the regulation of data access and portability.