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

We study the conditions under which an internet platform excessively collects personal information when information externality exists. A monopolistic platform runs two-sided business where users and firms form each side. Users do not pay fees to the platform, but firms pay for targeted advertisements. In an environment where marginal information externality is large, the amount of personal information collected exceeds social optimum i) when the utility of marginal user does not make up for the aggregate disutility of existing users and firms and ii) when the platform extracts large markup from firms to keep users.