Beyond markets, hierarchies, and hybrids: an institutional perspective on IT-enabled two-sided markets

Abstract

The term ‘two-sided market’, coined in the early 2000s, refers to a novel IT-enabled form of organizing economic activities exemplified by such firms as Uber, Amazon, and Taobao. While a rich literature has explored the phenomenon of two-sided markets, it has done so from a narrow technical perspective focusing on pricing issues. In this paper, we develop a novel framework to classify and characterize two-sided markets from an institutional perspective by extending and combining crucial categorical distinctions made by Williamson and Commons, one of the main sources of inspiration for Williamson’s Transaction Cost Economics. This new classification scheme identifies three institutionally distinct types of two-sided markets which are functional equivalents of traditional forms described by Williamson as markets, hybrids, and hierarchies. This suggests that two-sided markets may, under certain conditions, replace such traditional forms. We also develop a new proposition concerning the role of information technology in such a possible shift.