Selling Data to a Competitor (Extended Abstract)

We study the costs and benefits of selling data to a competitor. Although selling all consumers’ data may decrease total firm profits, there exist other selling mechanisms—in which only some consumers’ data is sold—that render both firms better off. We identify the profit-maximizing mechanism, and show that the benefit to firms comes at a cost to consumers. We then construct Pareto-improving mechanisms, in which each consumers’ welfare, as well as both firms’ profits, increase. Finally, we show that consumer opt-in can serve as an instrument to induce firms to choose a Pareto-improving mechanism over a profit-maximizing one.