A simple comparative model of worker‐managed and capital‐managed digital platforms

Abstract

AbstractWe develop a simple model to study the comparative statics of worker‐managed (WM) and capital‐managed (CM) app‐based labor platforms. The model assumes that algorithmic management makes free‐riding and collective decision‐making costs negligible and highlights different pay policies as the distinctive feature differentiating WM and CM platforms, in an environment where workers are financially constrained and capital markets are imperfect. With very simple algebra, we show that WM platforms may show greater cost efficiency and may be better able to benefit from network effects with respect to CM competitors. Yet, viability of WM firms may be critically impeded by the extra‐cost of the external capital, which enables CM platforms to pay a wage premium. The optimal pay policy of CM platforms is shown to vary depending on the intensity of network effects. Reported anecdotal evidence is compatible with main model's results.