The Economics of Data Spaces: Inter-Platform Externalities and Governance
Abstract: Data spaces are networks of independent and interoperable platforms with shared rules enabling their participants to exchange data. They exhibit inter-platform externality: participants value cross-side interactions both within and across platforms to a different extent. However, platforms price independently, leading to an inefficient level of participation. We develop a model of two-sided platforms to study how data space governance mechanisms address this coordination problem. We find that a monopolist outperforms several forms of decentralized governance. A price coordination mechanism can improve on this benchmark while making the platforms better off.