A Theory of Digital Firm-Designed Markets: Defying Knowledge Constraints with Crowds and Marketplaces

Hamed Tajedin (), Hamed Tajedin () and Mohammad Keyhani ()
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Hamed Tajedin: SANA Technologies, Tehran, Iran; Graduate School of Management and Economics, Sharif University of Technology, 11365 Tehran, Iran
Hamed Tajedin: Schulich School of Business, York University, Toronto, Ontario M3J 1P3, Canada; Rey Juan Carlos University, 28933 Madrid, Spain
Mohammad Keyhani: Haskayne School of Business, University of Calgary, Calgary, Alberta T2N 1N4, Canada

Strategy Science, 2019, vol. 4, issue 4, 323-342

Abstract: In this paper, we investigate the ways in which new forms of organization enabled by digital technologies, such as crowdsourcing and digital marketplaces, are allowing firms to circumvent and defy traditional knowledge constraints. This is part of the broader question of when and why these forms of organization are more efficient relative to alternatives, given that some firms simultaneously utilize crowdsourcing, marketplaces, and traditional forms of organization. We observe that an important cluster of these new organizational forms are able to circumvent knowledge constraints, because they combine elements of market and hierarchical organization in firm-designed hybrid arrangements. We further categorize these firm-designed markets into one-sided market arrangements (crowds) and two-sided market arrangements (marketplaces). To explain their efficiency relative to hierarchies and relative to each other, we take a knowledge-based perspective and review ways in which firm-designed markets reduce or remove both first-order (known unknown) and second-order (unknown unknown) knowledge constraints compared with hierarchies. Our argument hinges on the notion that firm-designed markets provide semidirected and undirected search and generativity mechanisms that allow firms to go beyond what is possible with centrally directed search.

Keywords: two-sided markets; economic organization; open innovation; digital economy; knowledge-based view; ecosystems; market-hierarchy hybrids; uncertainty; crowdsourcing; platforms (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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