Data-Driven Mergers and Personalization

Abstract

Recent years have seen an increasing number of data-driven mergers including the Google-Fitbit merger, in which a dominant digital platform acquires a start-up company in a market for data collection. Combined with its huge capacity of data analytics, the digital platform is able to use consumer data for personalization in correlated markets. Personalization leads to exploitation of consumers. Competition is intensified under personalization, which hurts competitors but benefits consumers. The merged firm will engage in below-cost pricing in the market for data collection and cross-subsidize the loss by its profit from markets for data applications, resulting in market foreclosure. However, the existence of a dominant competitor in the market for data collection can offset the merged firm's market power and protect competitors in both types of markets.