Selling strategic information in digital competitive markets

Abstract

AbstractThis article investigates the strategies of a data broker selling information to one or to two competing firms. The data broker combines segments of the consumer demand that allow firms to third‐degree price discriminate consumers. We show that the data broker (1) sells information on consumers with the highest willingness to pay; (2) keeps consumers with low willingness to pay unidentified. The data broker strategically chooses to withhold information on consumer demand to soften competition between firms. These results hold under first‐degree price discrimination, which is a limit case when information is perfect.