Manav Raj

Abstract

Digital distribution platforms facilitate transactions between existing establishments and consumers by lowering matching costs. In doing so, such platforms alter the competitive landscape of an industry. We present and test a holistic perspective outlining the ways in which digital distribution platforms affect value creation and capture within an industry. We argue that digital distribution platforms affect establishments through three pathways: a) altering the nature of consumer search; b) re-valuing strategic assets and resources; and c) introducing a novel intermediary into the value chain. Using data on the restaurant industry, we find that platform penetration increases the likelihood of establishment exit on average, but that the effect is importantly moderated by segment and establishment characteristics. The hazardous effect of platform penetration is smaller for highly familiar establishments (the rich get richer) and for niche market segments (the classic long-tail effect). Further, the effect is larger for restaurants who had previously invested in assets tied to the old business model that are less useful, and for restaurants operating with lower levels of efficiency who struggle to share profits with the new intermediary. Through this work, we add to our understanding of how digital distribution platforms affect the industries they enter.