Big data: Hell or heaven? Digital platforms and market power in the data-driven economy

Abstract

Digital transformation has triggered a process of concentration in several markets for information goods with digital platforms rising to dominate key industries by leveraging on network externalities and economies of scale in the use of consumer data. The policy debate, therefore, focuses on the market control allegedly held by incumbents who build their competitive advantage on big data. In this paper, we evaluate the risk of abuse of a dominant position by analysing three major aspects highlighted in economic theory: entry barriers, price discrimination, and potential for technological improvement. Drawing on industrial and information economics, we argue that the very nature of big data, on the one hand, prompts market concentration and, on the other, limits the possibility of abuse. This claim is not an a-priori apologia of large incumbents in digital markets, but rather an attempt to argue that market concentration is not necessarily detrimental when it stimulates continuous innovation. Nonetheless, the concentration of power in a few global players should raise other concerns linked with the supranational nature of these firms, which can easily cherry-pick locations to exploit tax competition among countries or more favourable privacy legislation and the fair use of data.