Why Specialist Firms Willingly Give Their Data to Big-Tech Rivals
Bhargava, Dubus, Ronayne & Shekhar: "The Strategic Value of Data Sharing in Interdependent Markets" Management Science, Volume 72 (2025)
A widely held assumption is that when a large, generalist technology firm (a “big-tech intruder”) enters a specialised market, the incumbent specialist firm should be fiercely protective of its proprietary data to maintain a competitive edge. However, new research by Hemant Bhargava (UC Davis), Antoine Dubus (ETH Zurich), David Ronayne (ESMT Berlin, Project A04), and Shiva Shekhar (Tilburg School of Economics) reveals a counter-intuitive strategic rationale for why a specialist firm might willingly share its market data with its powerful rival, even for free.
In their analysis, which models cross-market competition where data improve product quality across different markets, the authors demonstrate that a specialist firm uses data sharing to strategically engineer a relationship of co-dependence. This act softens competition by transforming the generalist firm from a traditional competitor into a “coopetitor”. The mechanism works because the specialist’s data substitute for the generalist’s need to make costly investments in product quality within the secondary market. By accepting the data, the generalist becomes a stakeholder in the specialist’s continued success; increased sales for the specialist translate directly into more valuable data flowing back to improve the generalist’s primary product.
The results detail the strategic retreat of the generalist in the specialist’s market: upon receiving the data, the generalist scales back its quality investment and output there. In response, the specialist firm expands its own investment and production, ultimately boosting its market share and profits.
A critical finding is that while this arrangement yields higher profits for both firms, it can be detrimental to consumers. The resulting weakened competition leads to lower investments in innovation and lower total output, resulting in a decline in consumer surplus in the secondary market. Furthermore, if the cross-market data externality is strong, consumer welfare can also fall in the generalist’s primary market. These findings deliver a cautionary note to policymakers: blanket support for business-to-business data sharing may unintentionally introduce anti-competitive effects, particularly in interrelated markets where tech conglomerates roam.
Link: The Strategic Value of Data Sharing in Interdependent Markets
