'Crowds' of Amateurs & Professional Entrepreneurs in Marketplaces

Abstract

Digital platform-based marketplaces often have a wide variety of amateurs working alongside professional enterprises and entrepreneurs. Can a platform owner alter the number and mix of market participants? I develop a theoretical framework to show that amateurs emerge as a distinct type of market participant, subject to different market selection conditions, and differing from professionals in quality, willingness to persist on the platform, and in mix of motivations. I clarify how targeted combinations of tweaks to platform design can lead the “bottom to fall out” of a market to large numbers of amateurs. In data on mobile app developers, I find that shifts in minimum development costs and non-pecuniary motivations are associated with discontinuous changes in numbers and types of developers, precisely as predicted by theory. The resulting flood of low-quality amateurs is in this context is associated with equally significant increases in numbers of high-quality products.

Keywords: platforms, complementors, crowds, entrepreneurs, long tail

JEL Classification: D4, E26, J4, L1, L8, 03