JOINT ECON-S&P: Digital Ecosystems and Data Regulation; Professor Andrew Rhodes (Toulouse School of Economics)

Abstract

This paper offers a framework for studying digital ecosystems and data regulation. In our model, a multi-product ecosystem competes with small single-product firms in both price and innovation. Data regulation either restricts data usage across business units within the ecosystem or requires the ecosystem to share its data with small competitors. While data regulation tends to encourage small competitors to innovate more, it dampens the data spillover effect within the ecosystem and reduces the ecosystem's incentive to innovate, leading to ambiguous welfare effects. Introducing a data cooperative among small competitors benefits consumers when small competitors have a smaller market share than the ecosystem in each market, while it benefits its members only when they have a larger market share.