1. The Changing Digital Economy: Rise of Platforms
Vili Lehdonvirta
Associate Professor
Oxford Internet Institute
@ViliLe
transaction platforms, not media platforms

2. another way: labour platforms vs. capital platforms
new platforms that mediate between buyers and sellers of services and labour
as well as older platforms that mediate between buyers and sellers of goods, whether physical or digital
another way: labour platforms vs. capital platforms
there used to be a saying, there’s an app for that
5 July 2016

3. Vili Lehdonvirta @ViliLe
5 July 2016

4. http://ilabour.oii.ox.ac.uk/ It’s not all hype
Uber is the biggest labour platform by revenue
Ebay and iTunes App Store likewise very significant
large market share
Vili

5. What is the problem that platforms solve?
Where are they therefore likely to appear?
What types of policy issues do they give rise to?
fundamental theory from institutional economics that helps us to understand what is the problem that platforms solve
and therefore where they are likely to appear, and where not
and what types of policy questions they will give rise to
are you ready?
Vili

6. Player A Cooperate Defect 2, 2 3, 0 0, 3 1, 1 Player B
Prisoners’ dilemma; but instead of prisoners, let’s analyse trade between two rational choosers
Vili

7. 🚚 , 💶 💶 , 🚚 Buyer Cooperate Defect 🚚+💶, 0 0, 🚚+💶 Seller
Vili

8. 🚚 , 💶 💶 , 🚚 Buyer Cooperate Defect 🚚+💶, 0 0, 🚚+💶 Seller social optimum
equilibrium
the best outcome is that both cooperate and the trade takes place: social optimum
but the tragedy is that the equilibrium outcome in this game, that is the outcome that rational players will end up choosing in a one-off game, is that both defect: no trade takes place
*fundamental problem of cooperation*
this model can also be used to analyse f2f trade: buyer and seller can exchange the goods and payment simultaneously, but then later the buyer may find out that the goods are defective, or the seller may find out that the cash was forged or the credit card stolen
Vili

9. Solutions to the Problem of Cooperation
Reputation
Informal reputation in personal networks
Third-party enforcement
Formal contracts enforced by state
= ”Institutions”
problems with reputation in personal networks:
limited scope: can only trade with people you know
not as effective: defection can happen when value of defecting is higher than value of losing one’s reputation; so only really applicable to low-value transactions
state institutions:
- can trade with strangers!
enforcement is costly, so only really applicable to high-value transactions
Vili

10. State institutions Personal networks
High-value transactions among strangers
Personal networks
Low-value transactions among friends
”sharing economy gap”
Vili

11. Sharing economy platforms
State institutions
High-value transactions among strangers
Sharing economy platforms
Low-value transactions among strangers
Personal networks
Low-value transactions among friends
technology enables
Vili

12. Vili Lehdonvirta @ViliLe
5 July 2016

13. State A’s institutions State B’s institutions
Transactions within state A’s jurisdiction
State B’s institutions
Transactions within state B’s jurisdiction
- there’s a huge rift in the institutional matrix: the gap within states
- state institutions only extend as far as state borders do
enforcing a contract in another country is costly, enforcement is often biased in favour of locals
personal networks also tend to be quite geographically bound
Brexit and looming trade wars only widen this gap
Vili

14. but these are not open at all; TNCs become gatekeepers
UNCTAD Global Value Chains and Development 2013
because of the transnational gap in public institutions, most cross-border exchange happens within TNCs’ private governance frameworks
but these are not open at all; TNCs become gatekeepers
24 June 2016

15. Bridging the transnational gap: eBay
eBay, Inc (2013) Micro-multinationals, global consumers, and the WTO
eBay: prime example of how platforms can provide an alternative institutional framework to bridge the transnational gap
Almost 150 million active traders today, around $20bn worth of goods annually
very international:
enforces cooperation via a reputation system like BlaBlaCar and other platforms
but also through formal dispute resolution
resolves three times as many disputes a year as there are lawsuits filed in the entire US legal system
Vili

16. 3 billion Internet users
Global online outsourcing platforms connect tens of millions clients and workers
World bank estimates: value of projects traded via outsourcing platforms
I 2015 $4.8 billion I .. by 2020 $15-25 billion
reputation system + online dispute resolution
Vili
5 July 2016

17. Solutions to the Problem of Cooperation
Reputation
Informal reputation in personal networks
Rating systems on platforms
Third-party enforcement
Formal contracts enforced by state
Formal dispute resolution performed by platform
Vili

18. State A’s institutions Transnational platforms State B’s institutions
Transactions within state A’s jurisdiction
Transnational platforms
Transactions across national boundaries
State B’s institutions
Transactions within state B’s jurisdiction
Platforms solve the Problem of Cooperation in places where there is a gap in the society’s existing institutional matrix
So if you want to find areas that are ripe for disruption by platforms, find gaps in the matrix, or places where institutions are functioning poorly
Vili

19. Platforms solve the Problem of Cooperation.
They are likely to appear where there is a gap in existing institutions.
What types of policy issues do they give rise to?
fundamental theory from institutional economics that helps us to understand what is the problem that platforms solve
and therefore where they are likely to appear, and where not
and what types of policy questions they will give rise to
are you ready?
Vili

20. Edelman, B. , Luca, M. , & Svirsky, D
Edelman, B., Luca, M., & Svirsky, D. (2016) Racial Discrimination in the Sharing Economy: Evidence from a Field Experiment. HBS Working Paper
Vili

21. Platforms’ institutional failings
Discrimination
Consumer protection
Externalities
Can the technology be improved?
Can national regulators encourage improvement?
Also child labour? Forced labour?
Back to square one in terms of developing institutions that are safe and fair for everyone?
Can national policy makers encourage platforms to improve their technology to address these issues?
Vili

22. Rosenblatt, A. & Stark, L. (2016) Algorithmic Labor and Information Asymmetries: A Case Study of Uber’s Drivers. International Journal of Communication 10:
Vili

23. Platform State institutions
Employees
managerial control legal protection
Platform
Platform workers platform control? no protection?
Contractors freedom no protection
Firm
Firm
State institutions
Vili

24. Platforms’ policy failings
Labour rights
Consumer rights
Access
How can workers and consumers affect the new rules that bind them?
Who makes the rules now?
Vili

25. State institutions Platform
usurper / replacer
Vili

26. Firm
Firm
Platform
State institutions
Vili

27. Potential ways forward
Distinguish between gap-fillers and replacers
Go easier on gap-fillers
Encourage improvements to address institutional failings
Encourage accountability / openness in how the platform sets its policies
Don’t hesitate to regulate replacers
But also learn from them: why are their institutions winning over people?
Vili