How Data Privacy Regulations Affect Competition: Empirical Evidence from Mobile Application Market

Abstract: Data has become a source of competitive advantages for firms in the digital economy, leading them to collect an extensive amount of personal data. This has sparked a policy debate over data privacy and security. Policymakers around the world have introduced privacy regulations to ensure the transparency of data collection and processing. How these regulations impact competition is a critical question that has not been thoroughly studied. While a data privacy regulation erects an entry barrier to new entrants in an industry, it can undermine the competitive advantage of an incumbent based on the plethora of data it has amassed. In other words, the data privacy regulation can be both anti-competitive and pro-competitive. We examine the effect of the General Data Protection Regulation (GDPR) on competitive intensity in the mobile app market. Our results indicate that GDPR has significantly affected the competition intensity in the app market. Specifically, the free app market has become more volatile after the implementation of GDPR (the pro-competitive effect). Interestingly, however, the opposite effect is found in the paid app market (the anti-competitive effect). Our work contributes to multiple streams of the information systems literature and provides meaningful insights for policymakers and managers.

Keywords: data privacy regulations, GDPR, mobile application, competition