Xiong Zhang (Beijing Jiaotong U) et al. have posted “Balancing Data-Driven Competition and Privacy Protection: A Duopoly Analysis of AI-Powered Digital Assistants” on SSRN. Here is the abstract:
Artificial Intelligence (AI) is rapidly empowering smart products, enhancing both work efficiency and quality of life. However, these improvements rely heavily on the continuous collection and processing of user data, raising significant concerns about privacy. In response, many countries have enacted regulations to protect personal data and consumer privacy. This study examines how privacy protection influences market competition in AI-powered digital assistant markets. We develop a stylized analytical model of a duopoly where firms differ in their ability to collect and monetize consumer data. The results reveal that stronger AI capabilities amplify the profitability of data-intensive firms, while data-light firms can strategically strengthen privacy protection to remain competitive, thereby generating mutual profit gains and enhancing consumer surplus as well as overall social welfare. These findings contribute to the theoretical understanding of data-driven competition and digital privacy management, while offering actionable insights for firms seeking to balance innovation, consumer trust, and regulatory compliance in smart product markets.