Collection of Personal Data with Information Externality in Two-Sided Markets

We study the conditions under which an internet platform excessivelycollects personal information when information externality exists. A monopolisticplatform runs two-sided business where users and firms form eachside. Users do not pay fees to the platform, but firms pay for targeted advertisements.In an environment where marginal information externality is large, theamount of personal information collected exceeds social optimum i) when theutility of marginal user does not make up for the aggregate disutility of existingusers and firms and ii) when the platform extracts large markup from firms tokeep users.