Is data like any other commodity?

Ask an Economist
Question: 

If data is a commodity that can be bought and sold, how is it impacted by supply and demand?

Answer: 

In many ways, data is indeed just another item that can be bought and sold on a marketplace: there is a demand for it, and there are organizations willing to supply it for a price. So what can we learn from a basic supply and demand analysis?

A standard prediction of perfect competition models is that an increase in demand will tend to drive up prices and lead to a greater quantity supplied by the market. In the context of data, the kinds of things that have increased demand (and are likely to continue increasing demand) are improved algorithms and better computers, which make it possible to learn more from data. Data will also be in greater demand when learning and prediction are more valuable. Arguably, this was the case during the last year, when the world was confronted with a new disease we knew little about. But this could also be the case for more mundane cases, for example, when firms branch out into new markets they do not know well.

Conversely, another standard prediction of perfect competition models is that any increase in supply will tend to drive down prices and lead to a greater quantity supplied by the market. In the context of data, factors that have increased the supply of data include the rapidly falling costs of acquiring some kinds of data, since digital technology tends to create new data as a by-product of use. Firms can also induce consumers to create more data by making digital products that consumers want to use - hence the ubiquity of free, high quality online services.

So it seems likely that both the supply and demand for data have been rising. With respect to prices, these effects pull in different directions, and so the net impact on the price of data is ambiguous. But both suggest there will be more data bought and sold on the marketplace. And that certainly seems to be the case.

At the same time, there are some unusual features of data that bear thinking about. Perhaps most important, many forms of data are jointly created by consumers and firms. For example, Google would not have any data about my search history if I did not use their product, but neither would I have data about my search history if I was unable to use Google to search for things. Accordingly, the ownership and control of data is a hotly contested issue. 

Answered by:
Dr. Matthew Clancy
Assistant Teaching Professor
Category: 
Tags: 
Last updated on May 20, 2021