Data-Driven Envelopment with Privacy-Policy Tying

Abstract

Abstract We present a theory of monopoly protection by means of entry in adjacent markets that have a common customer base (i.e., envelopment). A firm dominant in its market enters a data-rich secondary market and engages in predatory pricing and privacy-policy tying. We define the latter as conditioning service provision to the subscription of a privacy policy that allows bundling of user data across all sources. Acquiring data from the secondary market confers an advantage in the data-intensive primary market that shields the dominant firm from entry, thus harming consumers. We discuss potential remedies, including data unbundling and portability.