Abstract
Third-party data sharing is a widespread practice whereby firms acquire consumer data as a by-product of ordinary transactions and then sell it to other market participants, potentially imposing privacy costs on consumers. We study this practice in a framework with a monopolistic seller, a privately informed consumer, and a third party who chooses how intensively to utilize the data acquired from the seller. Our analysis highlights the role of the privacy β, which captures whether consumers with a higher willingness to pay for the seller’s product are more (β > 0) or less (β ≤ 0) averse to greater data use. When β > 0, third-party data sharing is coarse: the seller collects and sells at most one data record, pooling consumer types. In this case, greater data use lowers consumer rents. Conversely, when β ≤ 0, third-party data sharing is granular: the seller collects and sells multiple records that reveal consumer types. In this case, greater data use increases consumer rents. These forces govern the welfare comparison among three policy regimes: data anarchy, a data ban, and a data market.