The Economics of Data Unions: Optimal Data Sharing and Coordination

Abstract We develop a model of data-driven competition in which product quality depends on users’ data contributions and firms’ investments in data infrastructure. Users’ inability to internalize the value generated by their data, together with firms’ strategic investment incentives, can lead to data underinvestment—limiting quality—or overinvestment—concentrating market power. We introduce a data union that coordinates users’ contributions and can be implemented through a data trust or intermediary that aggregates user data. By shaping data compensation, the union enables users to capture and internalize more of their data’s value, enhancing user welfare, especially when combined with data sharing among firms. We apply these insights to financial data, digital payments, and Open Finance. Our analysis shows that data portability can strengthen competition but, without coordination, may leave data investment too low or excessive.