Equilibrium of Data Markets with Externality

Understand

We model real-world data markets, where sellers post fixed prices and buyers are free to purchase from any set of sellers, as a simultaneous game.

• A key component here is the negative externality buyers induce on one another due to data purchases.
• Starting with a simple setting where buyers know their valuations a priori, we characterize both the existence and welfare properties of the pure Nash equilibrium in the presence of such externality.
• While the outcomes are bleak without any intervention, mirroring the limitations of current data markets, we prove that for a standard class of externality functions, platforms intervening through a transaction cost can lead to a pure equilibrium with strong welfare guarantees.