The strategic value of data sharing in interdependent markets

Large, generalist, technology firms—so-called “big-tech” firms—powerful in their primary market, routinely enter secondary markets consisting of specialist firms. Naturally, one might expect a specialist firm to be fiercely protective of its data as a way to maintain its market position in the secondary market. Counter to this intuition, we demonstrate that a specialist firm willingly shares its market data with an intruding generalist. We do so by developing a model of cross-market competition in which the data collected via consumer usage in one market can improve product quality in another. We show that a specialist firm shares its data to strategically create codependence between the two firms, thereby softening competition and transforming the generalist firm from a traditional competitor into a coopetitor. For the generalist intruder, data from the specialist firm substitute for its own investments in product quality in the secondary market. As such, the act of sharing data makes the generalist a stakeholder in the data collected by the specialist, and consequently in the specialist’s continued success. Moreover, although the firms benefit from data sharing, consumers can be worse off from weakened price competition and lower investments in innovation. Our results have managerial and policy implications, notably on account of backlash against data collection and the market power of big-tech firms.