In the data gold rush, Big Tech firms have staked claims over vast swaths of the digital landscape. Google, Amazon, Apple, Meta and Microsoft mine rich information seams across diverse markets including commerce, communication, entertainment, and AI. Regulators fear this land grab is denying new entrants the resources they need to challenge incumbents. Europe’s Digital Markets Act (DMA) already restricts how large platforms combine data across their services. Elsewhere, regulators threaten to force data sharing or break up the estates altogether. But do these policies work? In a new study, TSE Digital Center Director Andrew Rhodes examines their impact on competition, innovation and consumers.
Why is data such a powerful tool?
The largest tech firms often act as “digital ecosystems”, offering a wide range of products and services across many different markets. A large part of their strategic power is derived from using data generated in one part of the ecosystem to improve their products in other parts.
Take a user who checks Google Maps for directions, watches YouTube in the evening, and uses Gmail and Gemini for work. Each interaction generates data that Google can use to sharpen its other services, allowing it to provide more relevant search results, better-targeted advertising, or a smarter AI assistant. Specialist competitors like DuckDuckGo, eBay or OpenAI may struggle to compete with an ecosystem like Google’s that spreads across search, maps, email, video, payments, mobile operating systems, cloud storage, and more.
So regulators want to level the playing field. Which policies did you examine?
We looked at three policies that are currently being implemented or actively debated. The first is restricting the ecosystem’s ability to share data across its own products. This is essentially what the DMA does when it requires ecosystems to obtain explicit consent before combining user data. We argue that breaking up a Big Tech company has qualitatively similar effects.
The second is forcing the ecosystem to share its data with specialist competitors. This is in the same vein as “open banking” rules in Europe, which require traditional banks to share data with fintech lenders if customers consent.
The third is a “data cooperative” in which specialist firms pool their data, so that collectively they can be better informed. We are currently seeing such initiatives in Europe.
What happens when governments restrict cross-market data use or enforce data sharing?
Single-product firms tend to benefit. When the ecosystem’s data advantage shrinks, its products become relatively less attractive and demand shifts toward the specialist firms.
For consumers, it gets more complicated because while the specialists innovate more, they also charge higher prices. At the same time, the ecosystem has less reason to collect data aggressively, so it innovates less and may raise its prices.
As a result, the benefits for consumers hinge on the specialist firms’ ability to innovate. If they are good at innovating, they increase their product quality more in response to data regulation. If firms only compete on price, consumers are worse off.
In our analysis, data sharing generally performs better for consumers than data restrictions, because it improves rivals’ products rather than simply weakening the ecosystem.
Should small players team up in a data cooperative?
If specialist firms pool their data, we might expect them to become more formidable collectively. But this policy can backfire if the ecosystem responds with aggressive price cuts to attract more users and so starve the cooperative of data. This counter-offensive can wipe out the benefits of the cooperative for its members, potentially leaving specialists worse off than before.
We find that whether a cooperative helps or hurts specialist firms depends on their initial market share. If specialists already have a large customer base, their data endowment makes the cooperative sufficiently valuable. For consumers, however, this may ramp up prices and reduce ecosystem investment.
What about putting a price on data?
If firms are willing to pay for data, we can design mechanisms to ensure that consumers benefit from data sharing and viable cooperatives. This compensation encourages the ecosystem to lower prices and collect more data, because more data means more revenue.
An important caveat is that greater data collection carries privacy implications. Any real-world regulatory design would need to weigh these carefully alongside the competitive and consumer benefits we identify by focusing on prices and product quality.
What is the most important message for policymakers?
Good intentions are not enough. Policymakers must think through the full chain of strategic responses that any regulation will trigger, especially in the context of complex digital ecosystems. Blunt interventions such as banning cross-market data use or mandating data sharing to help competitors will not automatically benefit consumers.
The most robust policies are those that strengthen innovation incentives across the board, using compensation mechanisms to align everyone’s interests.
KEY TAKEAWAYS
• Regulation can backfire – Data restrictions can help smaller firms to thrive but the ecosystem will invest less and consumers may face higher prices.
• Innovators are crucial – Consumers benefit only when specialist firms are sufficiently innovative, translating competitive gains into better products.
• Data sharing vs data restriction – Both policies weaken the ecosystem’s data advantage, but sharing improves rivals’ products rather than degrading the ecosystem.
• Collective action – Unless data cooperatives hold significant market share, they are vulnerable to aggressive price cuts by the ecosystem.
• Make them pay – Compensation schemes that allow firms to pay for data can improve competition, innovation and consumer welfare.
FURTHER READING
Since its inception in 2018, researchers at TSE Digital Center have been leading efforts to understand the economics of digital platforms, Big Data, and AI. “Digital Ecosystems and Data Regulation” (coauthored by Jidong Zhou and Junjie Zhou) and other publications by Andrew Rhodes are available to read on the TSE website.
