Strategic Redundancy in the Use of Big Data: Evidence From a Two-Sided Labor Market

Strategy Science, Forthcoming

66 Pages Posted: 10 Dec 2018 Last revised: 30 Aug 2019

See all articles by Moshe Barach

Moshe Barach

University of Minnesota - Twin Cities - Carlson School of Management

Aseem Kaul

University of Minnesota - Minneapolis

Ming Leung

UC Riverside School of Business; UC Riverside School of Business

Sibo Lu

Upwork

Date Written: August 27, 2019

Abstract

In this study, we examine how firms use the big data capabilities of third-party platforms to find transaction partners. While use of the platform’s big data capabilities creates value by lowering search costs, firms may capture little of this value if they become entirely dependent on the platform. We therefore argue that firms will invest in strategic redundancy, i.e., they will continue to rely partly on their internal screening capabilities to identify partners so as to maintain their bargaining power relative to the platform. We further predict that this reliance on internal screening will be greater the lower the relative advantage of the platform’s big data capabilities and the more salient the threat to the firm’s bargaining power. We test these predictions in the context of an online labor platform, using a research discontinuity design to examine the effect of the platform’s recommendations on the firm’s decision to hire an applicant. Consistent with our theory, we find that firms' use of the platform’s recommendations is lower in later stages of the hiring process, in larger sub-markets, and for firms with greater experience on the platform. Our study thus sheds new light on how firms make use of (third-party) big data techniques, showing that firms may strategically choose to limit such use in order to maintain independence.

Keywords: two sided platform markets, algorithms, transaction cost economics

Suggested Citation

Barach, Moshe and Kaul, Aseem and Leung, Ming and Lu, Sibo, Strategic Redundancy in the Use of Big Data: Evidence From a Two-Sided Labor Market (August 27, 2019). Strategy Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3277455 or http://dx.doi.org/10.2139/ssrn.3277455

Moshe Barach (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Aseem Kaul

University of Minnesota - Minneapolis ( email )

321, 19th Avenue S
3-412 Carlson School of Management
Minneapolis, MN 55455
United States

Ming Leung

UC Riverside School of Business ( email )

900 University Ave
Riverside, CA 92521
United States

HOME PAGE: http://https://sites.google.com/site/mingdleung/

UC Riverside School of Business ( email )

United States

Sibo Lu

Upwork ( email )

Mountain View, CA
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
179
Abstract Views
1,285
Rank
303,525
PlumX Metrics