This paper develops a framework in which a multiproduct ecosystem competes
with multiple single-product firms in both price and innovation. The ecosystem
can use data from one product to improve the quality of its other products.
We use the framework to study three regulatory policies aimed at leveling the
playing field. Restricting the ecosystem’s cross-product data usage, or forcing it
to share data with single-product firms, benefits those firms and induces them to
innovate more. However, these policies also dampen the ecosystem’s incentive to
collect data and innovate, potentially raising prices. Consumers are better off only
when single-product firms are sufficiently good at innovating. Facilitating data
exchange between single-product firms via a data cooperative can backfire and
harm them, because it induces the ecosystem to price more aggressively. For both
the data-sharing and data-cooperative policies, there exist data-compensation
schemes such that consumers are better off compared to no regulation.
