The Strategic Governance of Sharing Platforms: Transaction Costs and Integration Mechanisms

Introduction

Multiple industries, from accommodation services to car mobility, from freelance services to finance have been radically reshaped in the last few years due to the impressive growth of digital sharing platforms (European Commission, 2016). Among the most notable examples of such platforms are the cases of Airbnb (accommodation services), Lyft (car mobility), TaskRabbit (on-demand labor), and Kickstarter (peer lending). What accounts for the emergence and growth of sharing platforms across numerous industries today? How do these sharing platforms evolve over time and threaten the strategies and business models of industry incumbents? How can the platform evolution be effectively governed and strategically oriented? These are important and emerging questions for scholarly and policy-oriented research that have engaged multiple disciplines including anthropology, economics, law, management and sociology.

Our chapter contributes to this theoretical exploration from the perspective of platform governance using transaction cost theory (TCT) as the primary analytical lens. In doing so, we focus on three variables identified in TCT literature (Williamson, 1979): transaction frequency, transaction uncertainty, and transaction asset specificity. In particular, we analyze how such variables impact the strategic governance of sharing platforms by addressing three main transaction issues: 1. safeguarding of the assets invested by the parties in the transaction. 2. adaptation of the transaction to the changing circumstances. 3. measurement of the actual identity and performances of the involved parties.

In spite of the broad success of the TCT perspective, the extant literature has a scarcity of studies that have systematically theorized the general structural form of sharing platforms through an in-depth analysis of how economic exchange and transactions take place (Cheng, 2016; McIntyre and Srinivasan, 2017). By way of recent exception, Akbar and Tracogna (2018) have explored the role of TCT in explaining the strategic evolution and growth of sharing platforms in the specific context of the hotel industry. One of their main conclusions is that platform integration, defined as the increased involvement of the platform owner in the management of transactions and the minimization of transaction costs, represents an important option for the strategic governance of sharing platforms. The authors argue that, based on the market-hierarchy continuum implicit in TCT, there are two archetypes of sharing platforms. First is the peer-to-peer platform, where sharing involves three groups of participants: 1) goods and service providers who share physical or intangible (i.e., made of time or skills) assets; 2) users of these assets; and 3) platform owners who connect providers with users and facilitate transactions between them. The second type of sharing platform is the integrated platform, where the platform owner fully or partially integrates one side (typically the providers) and actively intervenes in the transaction mechanisms, directly addressing the issues of asset safeguarding, transaction adaptation, and identity/performance measurement. In this chapter, we draw parallels between sharing platforms and hybrid modes for governing economic transactions, since they both possess features of markets and hierarchies.

In common with markets, sharing platforms represent a marketplace that promotes transactions through the meeting of supply and demand. As with market settings, transactions can be repeated over time and the parties progressively learn how to deal with each other, thus activating mechanisms of relational contracting. As with hierarchies, sharing platforms directly influence transaction arrangements among the parties, through the formulation and enforcement of contractual conditions as well as the centralization of key administrative processes (payments, data collection, account management etc.). Further, we observe that sharing platforms are subject to a typical evolution: namely, they move from “peer-to-peer” (P2P) to “integrated” forms, where the platform owner—depending on transaction frequency (higher frequency justifies the investments in integration mechanisms), uncertainty level of transactions, and the required specificity of assets and services (based on preferences for specificity by platforms users)—adopts a series of governance mechanisms aimed at providing effective safeguarding, adaptation, and measurement features to transactions (which we call mechanisms of platform “integration”).