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How Platforms Change Markets: The Lens of “Institutional Voids”

Void

Do digital platforms change markets for better or worse?

To help understand this, we used the lens of institutional voids in the World Development paper, “Digital Platforms and Institutional Voids in Developing Countries”.  This argues that markets don’t work properly because they have institutional shortcomings or voids: inadequate provision of information, limited matching of buyers and sellers, poor management of transactions, ineffective market regulation, etc.

A promise of digital platforms is that they will fill these voids and change markets for the good.  We investigated this using evidence from Colombia and from the South Africa Fairwork project on taxi markets before and after the advent of three e-hailing platforms: Bolt, EasyTaxi and Uber.

The “before” picture was far from perfect.  Institutional voids led to markets with problems including high costs, crime, insecurity, opportunism, informality and discrimination.  As predicted, the gig economy platforms filled some of the institutional voids that led to this profile.  This reduced costs and risks for both drivers and passengers, improved vehicle and service quality, and enabled employment for those excluded from the traditional market.

Yet, in contrast to past research on business and institutional voids in the global South, we found that void-filling is not all that platforms companies do.  They also maintain some voids, such as lack of information and lack of formal employment status for drivers.  They expand some voids, such as lack of information available to government.  And they create some voids by circumventing the regulatory roles performed by government agencies and driver collective bodies.

The core impact of these additional strategies is to increase the relative power of the platform company vis-à-vis other market stakeholders and to make the market much more unequal.  Going far beyond the typical role of business, platform companies have internalised the institutions for the entire gamut of market functions; collapsing an entire organisational field into themselves.  The previously-distributed and -dissipated institutional power that the platform companies have concentrated into themselves is thus unprecedented, particularly given the duopolistic nature of the markets that are often created.

Filling institutional voids is not wholly beneficial – our research also identified problems caused by the digitalisations and formalisations that platforms bring.  But our key recommendation is a need to identify and address the voids that these companies retain or make.  Actions needed include information provision to address customer–driver asymmetries; revitalised state control over market supply–demand imbalance; new legislation to address lack of employment rights for workers; and more effective worker collectivisation.

Our research represents a novel insight into the relation between platforms, institutions and markets, and we look forward to further work applying these ideas to other sectors and contexts.

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