Your Data, My Data: Information Disclosure and Competition in Marketplace Platforms

Abstract The dominance of e-commerce platforms has raised concerns about potential anti-competitive practices, particularly due to their dual roles as marketplace operators and sellers. This study examines how platforms use data from third-party sellers, with a specific focus on the disclosure of potential buyers’ characteristics by sellers. Such disclosures can result in "informational spillovers," where platforms exploit this data to compete against sellers. This dynamic may discourage sellers from sharing critical information, leading to market inefficiencies. We analyze the conditions under which these inefficiencies arise and evaluate two policy remedies: vertical separation and informational firewalls. Our findings reveal that sellers choose to conceal buyer information under moderate substitution levels between products to prevent strategic competition, resulting in welfare losses due to reduced market competition and inefficient advertising allocation. When product substitution is high, sellers disclose information anticipating that the platform will choose to avoid competition; this leads to inefficiencies stemming from monopolistic outcomes. In contrast, low product substitution levels result in information disclosure and competition, thus, mitigating these market inefficiencies. Vertical separation, while encouraging information sharing, can reduce competition, resulting in mixed welfare outcomes. Informational firewalls, by restricting platforms from using seller data to gain a competitive advantage, promote consistent information sharing but may, in some cases, also limit competition and lead to inefficient advertising allocation. These findings highlight the intricate interplay between platform competition, seller information sharing, and regulatory interventions, offering valuable insights for policymakers and businesses operating in platform-driven markets.