Economists Say Voluntary Data Sharing Won’t Save Competition

Market Share Threshold

30%

Financial institutions above this market share should be required to share customer behavioral data.

§ 01 Executive Snapshot

What: Economists argue that voluntary data sharing won't enhance competition in financial services.
Who: Jens Prüfer and Paul de Bijl, Tilburg University and the Netherlands Authority for Consumers and Markets.
Why it matters: The findings highlight structural barriers in data ecosystems that favor dominant firms, threatening competition and innovation in the financial sector.

Dominant firms can leverage exclusive data to copy innovations from rivals, leading to a 'lock-in' effect.
The U.K.'s Financial Conduct Authority has acknowledged risks in financial services but lacks sufficient enforcement measures.
The authors propose that financial institutions with over 30% market share should be mandated to share customer behavioral data with competitors.

The debate on data-sharing reflects broader themes in market competition, where data advantages can lead to monopolistic behaviors.
Historical attempts at voluntary data sharing have consistently failed due to the inherent incentives for dominant firms to withhold data.

Immediate implications include potential regulatory changes that could require data sharing among larger financial institutions.
Long-term, the enforcement of data-sharing rules could reshape competitive dynamics in the financial services sector, fostering innovation and market entry for smaller firms.

Regulatory and enforcement challenges exist, as firms with significant data advantages may resist compliance with data-sharing obligations.
The complex nature of data valuation and the potential for disputes may hinder the establishment of effective data-sharing frameworks.

Upcoming regulatory developments, including the implementation of the Digital Markets Act, will be critical in shaping data-sharing practices.
The establishment of enforcement infrastructure by regulators will signal the seriousness and effectiveness of new data-sharing rules.

§ 07

What do economists believe about voluntary data sharing in financial services?

Economists argue that voluntary data sharing won't enhance competition in financial services.

Who conducted the research on data sharing and competition?

The research was conducted by Jens Prüfer and Paul de Bijl from Tilburg University and the Netherlands Authority for Consumers and Markets.

Why is the U.K.'s Financial Conduct Authority concerned about data sharing?

The U.K.'s Financial Conduct Authority has acknowledged risks in financial services but lacks sufficient enforcement measures to address them.

What regulatory changes do the authors propose for financial institutions?

The authors propose that financial institutions with over 30% market share should be mandated to share customer behavioral data with competitors.