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

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 general impact on entrepreneurial outcomes. Yet, this research has largely overlooked the power imbalance that entrepreneurs experience as members of the platform ecosystem and provided little guidance on how this enormous population of firms should compete within these ecosystems. 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). Drawing upon Emerson’s power-dependence theory, we show that the power imbalance at the heart of the relationship between the platform and its ecosystem members is intrinsic to the economics and the technological architecture of digital platforms. We undertake a conceptual analysis of the sources of this power asymmetry, and we unravel the novel types of risk and uncertainty that emanate from this imbalance. Further, we explore the strategies that PDEs are developing to mitigate their dependence on these platforms. 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