Regulating a Social Media Platform in the Data Economy

Abstract

This paper studies regulation of a social media platform (SMP). I consider a user network with data externalities and an SMP that earns revenue from data-based personalized advertising. The SMP offers a price for user data and users simultaneously accept or reject the offer. Under a microfounded model I show that sharing moderate amount of user data maximizes user welfare. However, externalities reduce price for data and all data is shared in equilibrium. A strict consent policy like GDPR overcorrects this imbalance, burdens users with complete data-control and decreases user welfare. Data minimization moderately shifts data-control to users and increases user welfare.