Too Much Data: Prices and Inefficiencies in Data Markets

When a user shares her data with online platforms, she reveals infor-mation about others. In such a setting, externalities depress the price of data because once a user's information is leaked by others, she has less reason to protect her data and privacy. These depressed prices lead to excessive data sharing. We characterize conditions under which shutting down data markets improves welfare. Platform competition does not redress the problem of excessively low data prices and too much data sharing and may further reduce welfare. We propose a scheme based on mediated data sharing that improves efficiency.

Automated summary

When a user shares data with online platforms, the price of data decreases due to externalities, resulting in excessive data sharing. Shutting down data markets can improve welfare, as platform competition fails to address the issue of low data prices and excessive sharing. A scheme based on mediated data sharing is proposed to enhance efficiency.