Information Acquisition and the Return to Data: Evidence from Firms on an E-commerce Platform

This paper investigates online retailers' decision to acquire information and the impact of data access on their business strategy and on revenue growth. We take advantage of proprietary data from a large e-commerce platform that sells data analytics products to virtual stores operating on it. The product provides detailed information on customer sources and characteristics, aggregate demand, and competitor strategies. Our empirical investigation relies on several high-frequency panel datasets and makes use of back-end changes in the pricing, variety, and bundling of the data analytics products. Focusing on several consumer electronics and peripherals markets, we find three main results. (i) Data acquisition facilitates growth, but small retailers are very sensitive to the cost of data. (ii) Retailers take marketing and product actions with the data collected but leave prices largely unchanged. (iii) A counterfactual simulation shows that a uniform reduction in the cost of data raises overall platform sales while reducing market concentration on the margin.

 

(New version with experimental evidence coming soon.)