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New working paper: “How important are user-generated data for search engine quality? Experimental results”

Online search engines are a key “platform market” and are used by billions of users every day. They offer the basic infrastructure for many other industries and are, therefore, of very high economic, political, and social importance. Over the past few years, an intense policy debate has formed around the question: do some search engines produce better search results because their algorithm is better, or because they have access to more data from past searches? In the former case, it may be best to refrain from interventions in the market in order not to stifle the innovation incentives of successful entrepreneurs (and their potential contestants). In the latter case, mandatory data sharing of user-generated data, a policy that is currently discussed and already contained in the EU’s Digital Markets Act, could trigger innovation and would benefit all users of search engines.

Together with Tobias Klein, Madina Kurmangaliyeva, and Patricia Prufer, I have had the opportunity to study this question empirically (theory is here). In 2020, we conducted an experiment with a small search engine, Cliqz, on behalf of the German Finance Ministry, who wanted to know when a market is “data driven” (results are here).

Now, the core academic paper is available, which reports background, methodology, and results in detail. The results show that the mandatory sharing of user data — a provision in the EU’s Digital Markets Act that is planned to be enforced in 2023 — may be an appropriate remedy on the search engine market: it would likely allow entrants, such as Cliqz, to successfully compete with the incumbent (Google) by enabling Cliqz to provide search results that are also of high quality for rare queries.

Unlike in other contexts, this remedy does not directly harm the incumbent, as it makes use of the non-rivalry of information: the incumbent will still be able to use the same data. Only the exclusivity of data access would be reduced. Consequently, users would benefit. 

If you are interested In how to implement mandatory data sharing on data-driven markets in an economically efficient way that is in line with European competition law, consumer protection law, IP law, and privacy law, read the article linked here.

Go West

I am happy to announce that, as of September 2022, I will move to the University of East Anglia’s School of Economics as Professor in Economics and join the Centre for Competition Policy. I am very much looking forward to the new environment and to contributing to interdisciplinary, policy-relevant research in economics, law, and political science.

CfP: Workshop on Economic Governance and Legitimacy

TILEC, the Tilburg Law and Economics Center, will be organizing a workshop on “Economic Governance and Legitimacy” at Tilburg University, the Netherlands, on May 19-20, 2022.

A foundational question for any economic governance system concerns the legitimacy of its rules, where legitimacy is defined as the degree to which individual citizens believe they have a moral obligation to obey the ruler (Bisin, Rubin, Seror, and Verdier, 2021). Obviously, if (most) people believe the ruler (president, queen, chieftain, dictator, association director, influencer, etc.) has the right to rule, ruling becomes cheaper, quicker, and more efficient. But what are the origins of legitimacy in political, legal, and social systems across the world? Why do some players have a lot of influence and are listened to by many followers, whereas others do not (even if their arguments or proposals may be better)?

During a multidisciplinary and discussion-intensive two-day on-site workshop, we aim to learn from theoretical, empirical, experimental, and conceptual papers addressing the topic from various angles.

Keynote addresses will cross disciplinary boundaries between economics and law (Gillian Hadfield, Toronto), sociology (Sonja Opper, Bocconi), political science (Gérard Roland, Berkeley), and religion studies (Jared Rubin, Chapman).

The deadline for paper submissions is January 16, 2022. Papers should be submitted in PDF format to TILECgovernance@tilburguniversity.edu. More details are in the call for papers and at the Workshop website.

“Consumers’ Privacy Choices in the Era of Big Data” forthcoming in Games and Economic Behavior

In 2013, Edward Snowden shocked the world by revealing large surveillance programs of US intelligence services. In 2012, Sebastian Dengler and I had started to think about privacy from an economic perspective. Of course, we were not the only ones, as this interim review article shows. It turned out to be a hard task to trade off the costs and benefits of privacy against other goods. Therefore, we are very happy that this work has now borne fruit.

Our paper, “Consumers’ Privacy Choices in the Era of Big Data” (working paper version), has just been accepted for publication in Games and Economic Behavior. There, combining Industrial Organization, Behavioral Economics, and insights about digital markets, we start from the observation that recent progress in information technologies provides sellers with detailed knowledge about consumers’ preferences, approaching perfect price discrimination in the limit. We construct a model where consumers with less strategic sophistication than the seller’s pricing algorithm face a trade-off when buying. They choose between a direct, transaction cost-free sales channel and a privacy-protecting, but costly, anonymous channel. We show that the anonymous channel is used even in the absence of an explicit taste for privacy if consumers are not too strategically sophisticated. This provides a micro-foundation for consumers’ privacy choices. Some consumers benefit but others suffer from their anonymization.

Video “Mandatory Data Sharing on Data-driven Markets: Why, When, and How?”

The University of Passau (Germany) dedicated a series of talks to the platform economy this summer. A diverse set of scholars had the opportunity (and time) to browse through various research projects and to point out connections and uncharted territories. In my contribution, now on video, I could tell the full story of the idea to implement mandatory sharing of user-generated data on data-driven markets: from economic theory via the development of a “test for data-drivenness,” its exemplification (by experimental testing with a search engine and in a representative consumer panel) up to the current draft of the Digital Markets Act and our proposal how to implement mandatory data sharing in practice.

The Nonprofit’s Dilemma

Nonprofit firms producing services that are of broad public concern — mission-driven organizations — are a key part of the economy in many countries, especially in “care” sectors (healthcare, childcare, care for the elderly…). They mostly pay lower wages than for-profit firms and often use low-powered incentive schemes, which has been explained by binding financial constraints and the threat to attract wrong worker types if wages are increased. Yet, they face higher labor turnover than for-profit firms, which is very costly.

Together with Yilong Xu, in a new, short discussion paper, I construct a simple model that reproduces these stylized facts, explains the high labor turnover of mission-driven organizations, and suggests a way out of this nonprofit’s dilemma, based on insights from the economic psychology literature. We construct testable empirical hypotheses and offer managerial and policy implications.

Post-Academic Training on Competition Law & Digital Regulation

The Tilburg Institute for Law, Technology, and Society (TILT) & the Tilburg Law and Economics Center (TILEC) jointly offer a post-academic training on Competition Law & Digital Regulation in January 2022. The program provides practitioners at law firms, in-house legal counsels, policy officials, or officials at regulatory authorities and sectoral bodies with a comprehensive overview of the legal issues relating to the application of competition law in the digital sector and the ongoing policy as well as legislative initiatives regarding the regulation of platforms and data.

The program is taught by a mix of distinguished practitioners who have direct experience of the rules and by an academic team whose members participate actively in the policy debates.

More information and registration is available here

“Governance of Data Sharing” forthcoming in Research Policy

The latest paper of our long-term project studying the economics of data-driven markets is concerned with implementing the policy solution that was developed by previous work: “Governance of Data Sharing: a Law & Economics Proposal” (co-authored with Inge Graef) has had quick uptake and will be published in a special issue on the “Governance of AI” at Research Policy.

To the best of our knowledge, this is the first actual design proposal how and with which governance structure (i.e. which allocation of rights and duties) mandatory data sharing can best be implemented. It is currently considered by EU authorities revising the proposal of the Digital Markets Act, a key piece of EU-legislation aiming to regulate online platforms.

More details (working paper version): To prevent market tipping, which inhibits innovation, there is an urgent need to mandate sharing of user information in data-driven markets. Existing legal mechanisms to impose data sharing under EU competition law and data portability under the GDPR are not sufficient to tackle this problem. Mandated data sharing requires the design of a governance structure that combines elements of economically efficient centralization with legally necessary decentralization. We identify three feasible options. One is to centralize investigations and enforcement in a European Data Sharing Agency (EDSA), while decision-making power lies with National Competition Authorities in a Board of Supervisors. The second option is to set up a Data Sharing Cooperation Network coordinated through a European Data Sharing Board, with the National Competition Authority best placed to run the investigation adjudicating and enforcing the mandatory data-sharing decision across the EU. A third option is to mix both governance structures and to task national authorities to investigate and adjudicate and the EU-level EDSA with enforcement of data sharing.

Member of EU Expert Group on the Online Platform Economy

The European Commission’s Digital Services and Platforms unit is responsible for the new key legislation regarding online platforms, namely the Digital Services Act and the Digital Markets Act (both proposed in December 2020). In 2018, they put up an expert group to the EU Observatory on the Online Platform Economy, which should advise the Commission on the main trends of the online platform economy and analyze potentially harmful practices there.

Now a set of new members has been appointed to the expert group, me included. I am looking forward to learn a lot and to discuss relevant issues with the group and Commission representatives.

New Working paper on Governance of Standard-Setting Organizations

Standard-setting organizations (SSOs) are a very interesting species of man-made contractual arrangements: They are usually nonprofits, i.e. they do not sell products or services and distribute profits to their owners. However, in contrast to many other clubs, their members are not individuals but profit-maximizing firms, i.e. organizations themselves. Moreover, often these firms have very heterogeneous interests. For instance, often some members are (upstream) innovators with patented technologies, whereas other members are (downstream) implementers, who take out a license of diverse technologies and sell products to final consumers. According to common wisdom among organizational economists, such heterogeneity in objectives should deteriorate the efficiency of SSOs (see, e.g. here). Nevertheless, many SSOs fulfill crucial roles as intermediaries in innovative industries. This opens the question, how they manage to square the circle.

In a new working paper, “Membership, Governance, and Lobbying  in Standard-Setting Organizations” (joint with Clemens Fiedler and Maria Larrain), we try to better understand the internal workings (aka governance) of SSOs. Specifically, inspired by recent empirical results, we construct a game-theoretic model, with which we study the incentives of heterogeneous innovators and implementers to join an SSO, which is endogenously formed. We also study the effect of SSO governance on membership incentives and on members’ lobbying efforts to get their technologies included in the standard. We show that, depending on parameter realizations, one of four equilibrium types arises uniquely. The results can reconcile existing evidence, especially that many SSO member firms are small. We show that raising the influence of implementers within the SSO increases the standard’s market coverage and lowers royalty rates but it erodes innovators’ incentives to contribute to the standard. We also show that both large innovators and large implementers have incentives to make the standard more inclusive, which decreases quality and damages smaller firms.