The paradox of ‘data markets’

by Sebastian Benthall

We often hear that companies are “selling out data”, or that we are “paying for services” with our data. Data brokers literally buy and sell data about people. There are other forms of expensive data sources or data sets. There is, undoubtedly, one or more data markets.

We know that classically, perfect competition in markets depends on perfect information. Buyers and sellers on the market need to have equal and instantaneous access to information about utility curves and prices in order for the market to price things efficiently.

Since the bread and butter of the data market is information asymmetry, we know that data markets can never be perfectly competitive. If it was, the data market would cease to exist, because the perfect information condition would entail that there is nothing to buy and sell.

Data markets therefore have to be imperfectly competitive. But since these are the markets that perfect information in other markets might depend on, this imperfection is viral. The vicissitudes of the data market are the vicissitudes of the economy in general.

The upshot is that the challenges of information economics are not only those that appear in special sectors like insurance markets. They are at the heart of all economic activity, and there are no equilibrium guarantees.

Advertisements