Are Platforms Killing the Offline Star? Platform Diffusion and the Productivity of Traditional Firms

Abstract

Online platform use has grown remarkably in the last decade. Despite this, our understanding of its implications for economic outcomes is scarce and often limited to case studies in advanced countries. Using a newly built harmonised international dataset of online platforms and their use across 28 advanced and emerging countries, covering the 2013-18 period and seven areas of activity, we contribute to filling this gap. We investigate whether and under what market conditions platforms’ activity in one sector leads to changes in the productivity of incumbent firms operating in the same sector. We find that platforms’ activity increases labour productivity growth of the average firm, and that this takes place through increases in value added growth as opposed to decreases in employment. Productivity gains are greater for small firms and firms in the middle of the productivity distribution, suggesting that online platforms can play a role in levelling the playing field between SMEs and large companies and in narrowing productivity gaps across firms. Finally, productivity gains are stronger where competition among online platforms is higher. Our findings offer insights on factors and policies that can be leveraged to encourage platform development in ways that are beneficial for the economy.

Keywords: codes: D22, D24, O33, O47keywords: Productivity, firm behaviour, online platforms, digitalisation