Competing for Cookies: Platforms’ Business Models in Data Markets with Network Effects

Abstract

We consider platform competition when platforms can either 1) commercialize users’ data and in return offer their services for free (data-based business model); 2) protect users’ data and charge users for participation (subscription-based model); or 3) offer both options (the hybrid model). We find that competition does not always motivate the incumbent platform to protect users’ data. When data has a high public benefit (i.e., users get high benefits from data collected on other users), competition can motivate the incumbent to switch from the data-based to the subscription-based model. Yet, the opposite case occurs when the public benefit of data is small.