Platform-Dependent Entrepreneurs: Power Asymmetries, Risks, and Strategies in the Platform Economy

42 Pages Posted: 1 Jul 2019 Last revised: 27 Jan 2020

See all articles by Donato Cutolo

Donato Cutolo

University of Bologna - Department of Management

Martin Kenney

University of California, Davis

Date Written: April 15, 2019

Abstract

Online digital platforms organize and mediate an ever-increasing share of economic and societal activities. Moreover, the opportunities that platform-mediated markets offer not only attract enormous numbers of entrepreneurs, but also support the growth of entire ecosystems of producers, sellers, and specialized service providers. The increased economic and business significance of digital platforms has attracted an outpouring of studies exploring their power dynamics and general impact. And yet, to date, this research has overlooked the power imbalance that entrepreneurs experience as members of the platform ecosystem and provided little guidance on how these far more numerous firms should compete. Drawing upon Emerson’s power-dependence theory, we show that the power asymmetry at the heart of the relationship between the platform and its ecosystem members is intrinsic to the economics of digital platforms, platform design, technological architecture, and contractual agreements between the parties. We undertake a conceptual analysis of the sources of this power, and we unravel the novel component of risks that emanate from this imbalance. Our analysis suggests that the conditions of engagement for platform entrepreneurs are so different from traditional entrepreneurship that these entrepreneurs are more usefully termed “platform-dependent entrepreneurs (PDEs). Further, we explore the strategies that PDEs are developing to mitigate their dependence. Finally, our study provides a framework for policy makers that are considering regulating platform-organized markets.

Keywords: Platform Economy, Digital Platforms, Entrepreneurship, Ecosystem, Complementors

JEL Classification: L26, L86

Suggested Citation

Cutolo, Donato and Kenney, Martin, Platform-Dependent Entrepreneurs: Power Asymmetries, Risks, and Strategies in the Platform Economy (April 15, 2019). Available at SSRN: https://ssrn.com/abstract=3372560 or http://dx.doi.org/10.2139/ssrn.3372560

Donato Cutolo (Contact Author)

University of Bologna - Department of Management ( email )

Piazza Scaravilli 1
Bologna, Bologna 40126
ITALY

Martin Kenney

University of California, Davis ( email )

Community and Regional Development Unit
Davis, CA 95616
United States
5305745943 (Phone)

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