Data, Competition, and Digital Platforms (cid:3) Preliminary and Incomplete(cid:151) Please Do Not Cite

We propose a comprehensive model of digital commerce in which data and hetero-geneity are de(cid:133)ning features. A digital platform matches consumers and advertisers online. Each consumer has heterogenous preferences for each advertiser(cid:146)s brand, and the advertisers can tailor their product lines to the preferences of the consumer. Each consumer can access each seller(cid:146)s products online or o› ine. The digital platform can improve the quality of the match through its data collection, and monetizes its data by selling digital advertising space in (generalized) second-price auctions. We derive the equilibrium surplus sharing between consumer, advertisers and the digital platform. We evaluate how di⁄erent data-governance rules a⁄ect the creation and distribution of the surplus. We contrast the unrestricted use of data with contextual and cohort-restricted uses of data. We show that privacy-enhancing data-governance rules, such as those corresponding to federated learning, can increase the competition among the advertisers and lead to welfare for the digital platform and for the consumers.