Data Sales and Data Dilution

The market power of data sellers is a topic of concern for policymakers. To measure market power, economists typically examine markups, which are price divided by marginal cost. For many data products, the marginal cost is zero, making the markup infinite. We explore what observable variables are indicative of market power in a data market. While most data sellers have a monopoly for their exact data set, they also cannot commit not to sell data to other customers. We find that limited commitment, combined with the fact that data's strategic value declines in the number of users, makes data sellers behave more competitively. Monopolist data sellers do not have much monopoly power, but data subscription sellers do. Using evidence from online data markets, we explore firms' use of sales and subscriptions, test the model's predictions and then quantify the model to determine what is best for consumer surplus. We find that data subscriptions are indicative of market power, but are also better for consumers, because they create an incentive to invest in high-quality data.