Regulating Digital Platform Ecosystems through Data-Sharing and Data-Siloing: Consequences for Innovation and Welfare

Digital platform ecosystems thrive on their ability to acquire and leverage user data across multiple data-driven services. This enables dominant platforms to harness insights obtained from their primary markets, where user data is collected, thus gaining a competitive advantage in secondary markets, where they exploit this data. While data cross-use brings about efficiencies, policymakers worldwide express concerns about the economic power and potential distortion of competition and innovation incentives associated with it. To address these concerns, two distinct and targeted policy interventions have been suggested: data-siloing, which restricts the cross-use of data within platform ecosystems, and mandated data-sharing with competitors. Using an analytical model that examines data cross-use in digital platform ecosystems, we analyze the impact of data-siloing and data-sharing obligations, and their interaction on competition, innovation, consumer welfare, and overall social welfare. Our findings indicate that an optimal policy involves data-sharing without data-siloing, whereas the EU’s Digital Markets Act currently mandates both types of data cross-use regulation.