Larger firms pay more in the gig economy

38 Pages Posted: 18 Feb 2021

See all articles by Zhen Lian

Zhen Lian

Cornell University - Samuel Curtis Johnson Graduate School of Management

Sebastien Martin

Northwestern University

Garrett van Ryzin

Amazon

Date Written: January 29, 2021

Abstract

If gig economy firms enjoy such powerful network effects, then why are such markets typically highly contestable and not dominated by large firms? We propose a theory showing that a shared pool of labor utilized by multiple firms creates diseconomies of scale at equilibrium. Specifically, smaller firms can free-ride on the shared labor pool that is maintained by larger firms that pay workers more in equilibrium. At the same time, our theory also shows that large firms are necessary for gig economies to form. These results provide important insights on the unique economics of the gig economy.

Keywords: Gig economy, diseconomies of scale, wage equilibrium

JEL Classification: L11, J49, D24

Suggested Citation

Lian, Zhen and Martin, Sebastien and van Ryzin, Garrett, Larger firms pay more in the gig economy (January 29, 2021). Available at SSRN: https://ssrn.com/abstract=3775888 or http://dx.doi.org/10.2139/ssrn.3775888

Zhen Lian (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Sebastien Martin

Northwestern University

2001 Sheridan Road
Evanston, IL 60208
United States

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