The legitimation of digital platforms across different markets in the Netherlands

Abstract

Digital platforms such as Uber, Deliveroo and Airbnb are part and parcel of present times. Previous studies mention how digital platforms transcend market boundaries, making them ‘market-agnostic’. Practice has shown how digital platforms often disrupt the markets that they enter, thereby formulating new rules of the game. This forms a discrepancy with what is proclaimed in institutional theory, that is, an organization needs to conform to its institutional environment to be perceived as legitimate. While existing literature is often concerned with studying the legitimation of platforms through case studies that take place in a single market, how the legitimation of digital platforms is affected on a macro-level has hitherto remained unexplored. Hence, this study addresses the current gap in the literature by examining how digital platforms leverage legitimacy spillovers from markets. More formally, the study asks: to what extent does the market entry of a digital platform in the Netherlands depends on external legitimacy spillovers? In defining external legitimacy spillovers, the theoretical perspectives of institutional theory and organizational ecology are synthesized in the form of the density dependence model. This study specifically extents the basic density dependence model by taking the markets where the platforms are active in as unit of analysis. In the model, the density of platforms in a market is used as a proxy for legitimacy spillovers and competition. The model is applied in the form of logistic regression analyses on two samples during the period of 2010 to 2020: the population of gig platforms and the population of sharing platforms in the Netherlands. The results prove that digital platforms benefit from legitimacy spillovers by other platforms in the same market on the short term, while concomitantly being negatively affected by spillover effects from other markets. However, as local competition between platforms becomes more intense, subsequent market entry also becomes dependent on legitimacy spillovers from platforms in other markets. This study suggests that the latter effect is induced by platforms that engage in institutional transposition, which denotes the process in which the status and experience garnered in one market is converted to another dimension. These results are integrated into a proposed visual model that illustrates the relationship between digital platforms and spillover effects within and between markets. In doing so, this study marks the beginning of uncovering how digital platforms can leverage legitimacy spillovers from markets through transposition.