The Impact of Data Portability on Platform Competition

Data (number) portability increased switching activity in telecoms markets, but not so far in banking. Data portability is, however, particularly relevant in platform markets dominated by Big-Techs in order to allow an entrant to compete on quality through profiling and matching algorithms. This article discusses results from a model on incumbency advantage among two-sided platforms, whereby agents face different levels of switching costs. Interestingly, policies aimed at lowering switching costs, especially for consumers with higher costs due, for example, to behavioural inertia, might unintendedly hurt entry, as the incumbent platform becomes less accommodative. Moreover, higher switching costs help to avert “winner-takes-all” outcomes preventing sustainable entry. Again counterintuitively, these results show the incumbent preferring a multihoming regime, whereas users might be worse-off. These findings raise deep questions from a regulatory perspective, given that data portability policies are typically motivated by the desire to facilitate competition through multihoming and reducing switching costs.