PLATFORM OVER MARKET – WHEN IS JOINING A PLATFORM BENEFICIAL?

Firms struggle to meet dynamically changing customers’ needs. One challenge is to navigate a complex search space to find resources needed for innovations that meet customers’ needs. Another challenge is to acquire the resources at lower costs than revenue opportunities to yield profitability. Digital platforms promise to address these challenges better than the market by providing search matching capabilities and modular, reusable resources. We examine whether platforms improve innovation performance and profitability of firms better than the market, as assumed. Using agent-based modeling and simulation, we find that firms perform better in the market when environmental complexity is low. As environmental complexity increases, firms start to perform better on the platform than in the market, specifically when the platform owner remarkably invests in search matching and modularity capabilities. The study advances our understanding of the environmental conditions under which platforms could be superior or inferior to the market.