How to Monetize Data : An Economic Analysis of Data Monetization Strategies Under Competition

With data being generated at an unprecedented rate, the monetization of data has become a paramount issue in this era of the digital economy. A common strategy is to leverage consumer data to improve product or service offerings and increase sales revenue, so-called indirect data monetization. The emergence of online data markets and the data brokerage industry has recently facilitated direct data monetization, enabling firms to obtain additional revenue by selling their data directly to data brokers. This study develops a game-theoretic model to investigate the interactive effects of direct and indirect data monetization on competition between firms. Our results show that large firms with competitive advantages in product or service offerings often sell less data than small firms, implying that large firms rely less on direct data monetization. Surprisingly, with increased direct data monetization, the large firm would further dominate the market for selling products or services, suggesting that data brokers may hinder rather than facilitate market competition. Finally, direct data monetization may benefit consumer surplus and social welfare because it facilitates data sharing between firms, allowing firms to obtain additional insights to improve service offerings. These findings are explored in-depth, along with their relevant managerial implications