Whoever Holds the Data Holds the Power – the Pros and Cons of the Data Economy

From searching for information on Google to connecting with friends on Facebook, consumers are able to access many services in the digital economy for free. The typical pricing mechanism that plays such a central role in the social market economy is no longer relevant in this new branch of the economy. However, while at first glance all these services might seem free, the internet has its own currency: our personal data. In exchange for online services, users provide companies with information that is of interest to them – particularly for the purposes of advertising.

In many sectors of the digital economy, data has become a crucial means of production, helping to advance humankind, for example, in the field of medicine. However, there are many potential dangers in terms of both data protection and the functioning of the markets. A large pool of data gives companies a competitive advantage and, in many cases, a means to keep their competitors from growing. This can lead to markets being monopolised, with negative effects for the economy as a whole.

In their new book, Professor Achim Wambach, president of the Centre for European Economic Research (ZEW), Mannheim, and chair of the German Monopolies Commission, and Hans Christian Müller, editor at Handelsblatt, detail both the great promise the rise of the data economy brings and the problems it is likely to cause. In the book “Digitaler Wohlstand für alle – Ein Update der Sozialen Marktwirtschaft ist möglich”, released on Friday by Campus Verlag, they explain how data has come to be such a crucial form of payment in the digital economy, why not all markets function better when there is more data available and how data can encourage the development of monopolies. They also explain the role of trust in data protection for the success of digital transformation and address the core question of how to differentiate between “good” and “bad” data and how to deal with both.

The authors are confident that many of the things that have only recently been made possible thanks to data analytics have already helped to create prosperity, even though they initially started without any plan or system in place. According to the authors, it is therefore absolutely essential that future efforts focus on bringing order to the data economy to ensure that these prosperity-enhancing effects continue to develop in the desired way. With this purpose in mind, companies, competition regulators and policymakers need to develop new and transparent rules suitable for this new digital age. This is the only way to create trust in the data economy and in technological progress.