Collaborative Research: The economics of social data

Yale University, New Haven CT

Investigators

Abstract

This award funds research in economic theory. The rise of large Internet platforms is leading to an unprecedented collection and use of data. The platforms generate massive amounts of data about individual consumers, their preferences, their locations, their friends, their political views, and almost all other facets of their lives. The availability of individual-level data allows companies to offer refined search results, personalized product recommendations, informative ratings, timely traffic data, and targeted advertisements. The resulting markets for data introduce a fundamentally new set of economic relationships. A central feature of the data collected from individuals is its social aspect. Namely, the data captured from an individual user is not only informative about that specific individual, but also about users similar to her. Thus, individual data is really social data. The social nature of the data generates an informational externality. That is, an individual providing information about herself affects the marketplace options available to others. This project will give us new insights into how data markets affect economic outcomes. The team will pursue a research agenda focused on data markets. The first step is to establish the theoretical foundations of our understanding of how information markets work. This research focuses on the social aspect of information collection, which leads to a newly understood "data externality" that can be associated with various market failures. This research seeks to understand why internet data platforms tend to become large dominant firms, and how this affects the welfare of consumers, advertisers, and publishers. The next step is to analyze whether and how large internet platforms can maintain and possibly extend their market power through various contracting and commercial practices, and how both antitrust enforcement and regulatory policy might respond. The team will investigate the likely industry equilibrium and competitive structure in such markets for data and information, and any possible regulatory interventions. More specifically they will develop new results on how the gathering of this kind social data impacts the economics of content providers (e.g., online, print, radio and television media). Finally, how do the current contracting practices in the digital advertising markets accentuate or attenuate the data externalities, and the resulting social outcomes? These questions gain importance in the presence of the externality generated by the social data. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.