Luohan Academy

Why We Study Platform Economy

AN INTRODUCTION OF "PLATFORM ECONOMY" BY LUOHAN ACADEMY

For many decades, the Coase theorem of the "division of labor" between organizations and markets has been the fundamental framework for understanding resource allocation and coordination mechanisms. However, along with the emergence of digital technology, the platform has altered the organization of economic activity in an unprecedented way as they enlarge the scale and scope of coordination among many parties within economies. In the process, the platform breaks the boundaries of firms and often eases the restrictions of geography, thereby facilitating the allocation of resources at an enormous scale. The successes and ubiquitous presence of the platform economy are reflected in the creation of the world's most valuable firms – including Alphabet, Facebook, and Amazon – and the expansion of interconnected ecosystems that grow out of these platforms. Along the way, essential and heated debates over the implications of the platform economy for innovation, competition, and platform governance also arise. 

Working with leading researchers and industry experts in the field, we hope to investigate the following set of questions: What is the role of the digital platform – especially in relation to individuals, firms, and the government – within the economy? What are the impacts of the platform on society-wide innovation? What are the best ways to think about platforms as business models, and what are the implications for competition policies? 

The transformative power of the platform in the business world and in society makes it critical to form a deeper understanding of the economic forces behind such development. As various platforms increasingly function as basic infrastructure and bring new opportunities, concerns about these platforms' power and influence as private firms arise. Amid the critical periods when regulatory bodies across the globe are engaged in the debates about creating new competition policies for the digital platform, we need to understand better the functionality of the platforms, their incentives and constraints, their potential and limitations, and the nature of their interactions with the society at large. These understandings will inform policy design and shed light on creating a future path of more equitable growth in the realm of the platform economy. 

Understanding the role of the platform

Constructing the micro foundations for a market requires addressing three types of informational challenges: searching for and matching buyers with sellers, ensuring that the goods and labor services exchanged are truthful descriptions of what is offered, and establishing the trust that is needed to create an environment in which there are repeated, mutually beneficial interactions. With digital technology, platforms facilitate large-scale coordination with unprecedented levels of participation. How does the platform differ from traditional firms and organizations? How does the platform change the ways that social and economic interactions occur? How does the platform enable coordination among diverse sets of participants?

Why are platform-based companies so valued in the capital markets? The core of our research agenda is to understand the roles that platforms play and their influence on individuals and firms in society. By assessing the impact of the platform on efficiency, productivity, and welfare through empirical investigations of cutting-edge business practices, we hope to characterize better the tradeoffs associated with the expansion of the platform economy. 

Platform and innovation 

Thanks to the rapid development of digital technology, communication and large-scale collaboration have never been easier. In these processes, platforms often serve as the orchestrator and coordinator of interactions. New apps, services, and products are created and unleashed on the world daily on different digital platforms. The central role that the platforms take in the ecosystem they host implies these platforms could have profound impact on their participants, especially as the platforms aggregate, filter and disseminate information. Once in a while, we also see innovative platforms based on a competing business model, challenging the existing dominance of incumbents. How do different strategies, methods of governance, and platform design affect innovation? How do platforms shape the direction and intensity of innovative efforts? What role does innovation play in the creation, revision, and disruption of the platform economy? What are the implications for new business models, firms' strategies and entrepreneurship more broadly? We strive to develop a better understanding of how innovation is altered in the platform economy and the implications for society.   

Competition in the era of the platform economy  

As platforms become ubiquitous in everyday life, the power of platform companies is also growing. The seemingly looming power of these platforms is not just reflected in their positions in the capital markets, but more importantly, in the profound implications, as the companies adjust strategy and governance, for the millions and even billions of participants in their ecosystem. Concerns and worries naturally arise as the platforms' agenda, as private firms, conflict with their roles as public infrastructure providers. Yet, the existing frameworks of competition and antitrust policy lag behind the platform economy's rapid development. In the wake of the debate to reconsider approaches to regulate digital platforms, it becomes essential to examine competition structure in the platform economy. How are the platforms competing with each other? What is the relationship between platforms and more traditional sectors? What are the implications for participants and other actors in society? How can we evaluate the impact of various strategies that platforms adopt, both as private firms and as governors of their ecosystem? Which strategies are anti-competitive? How can society manage the tradeoff between efficiency, innovation, consumer protection and equity? The answers to these questions will provide a more solid basis for designing and implementing new regulatory frameworks, and will address the new challenges for competition in the era of the platform economy. 

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