Coopetition Against an Amazon

This paper analyzes cooperative data-sharing between competitors vying to predict a consumer's tastes. We design optimal data-sharing schemes both for when they compete only with each other, and for when they additionally compete with an Amazon – a company with more, better data. We show that simple schemes – threshold rules that probabilistically induce either full data-sharing between competitors, or the full transfer of data from one competitor to another – are either optimal or approximately optimal, depending on properties of the information structure. We also provide conditions under which firms share more data when they face stronger outside competition, and describe situations in which this conclusion is reversed.