Competing for Cookies: Platforms’ Business Models in Data Markets with Network Effects

We consider platform competition when platforms can (1) commercialize users’ data and in return offer their services for free (data-based business model); (2) protect users’ privacy and charge users for participation (subscription-based model); or (3) offer both options (the hybrid model). We find that competition does not always motivate the incumbent platform to protect users’ privacy. When network effects are intermediate, competition can motivate the incumbent to shift from the subscription-based model to the hybrid model, thereby increasing data commercialization. Yet, the opposite case occurs when network effects are weak. Moreover, allowing the incumbent to adopt the hybrid model is welfare enhancing when network effects are strong and welfare reducing (or neutral) otherwise. This paper was accepted by Alfonso Gambardella, business strategy. Funding: This work was supported by the Henry Crown Institute, the Eli Hurvitz Institute on Strategic Management, the NET Institute, and the Coller Foundation [Grant 0612017311]. Supplemental Material: The online appendices are available at https://doi.org/10.1287/mnsc.2024.07744 .