Abstract
The market power of data sellers is a topic of concern for policymakers. While most data sellers have a monopoly for their 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. While subscriptions allow firms to credibly commit to restrict their supply of data, they also incentivize firms to invest in higher-quality data. Using evidence from online data markets to quantify the model, we find that data subscriptions are better for consumers. While subscriptions benefit firms and consumers, financially constrained firms tend to front-load their revenue by selling data. Regulation to eliminate data market power may backfire, because without rents, the incentive to invest in high-quality data disappears.