Softening Competition Through Unilateral Sharing of Customer Data

Abstract

We study how a data-rich firm can benefit by unilaterally sharing its customer data with a data-poor competitor when the data can be used for price discrimination. By sharing data on the segment of market that is more loyal to the competitor and keeping the data on the competitor’s most loyal segment to itself, the firm can induce the competitor to raise its price for consumers on which it does not have data. Such data sharing is an example of a fat-cat strategy as it softens price competition that follows data sharing. Although consumer surplus decreases as a result of data sharing, total surplus can increase when the sharing firm concedes its market share to the competitor, which improves the quality of consumer–firm matching. This paper was accepted by Joshua Gans, business strategy. Funding: C. Choe and C. Wang gratefully acknowledge financial support from the Australian Research Council [Grant DP210102015]. J. Cong would like to acknowledge the financial support from the National Natural Science Foundation of China [Grants 72003035, 72192845] and Shanghai Pujiang Program [Grant 2019PJC007]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.4689 .