Capacity‐constrained entrepreneurs and their product portfolio size: The response to a platform design change on a Chinese sharing economy platform

• Author: Xueming Luo,Zhijie Lin,C. Jennifer Tae
• Date: 01 September 2020
• Published date: 01 September 2020
• DOI: http://doi.org/10.1002/sej.1360

SPECIAL ISSUE ARTICLE

Capacity-constrained entrepreneurs and their

product portfolio size: The response to a platform

design change on a Chinese sharing economy

platform

C. Jennifer Tae

1

| Xueming Luo

1

| Zhijie Lin

2

1

Fox School of Business, Temple University, Philadelphia, Pennsylvania

2

School of Economics and Management, Tsinghua University, Beijing, China

Correspondence

Zhijie Lin, School of Economics and

Management, Tsinghua University,

440 Weilun Building, Beijing 100084, China.

Email: dr.zhijie.lin@gmail.com

Abstract

Research summary: How do entrepreneurs on a sharing

economy platform (SEP) with a limit to aggregate output

(capacity constraints) respond to a platform design change

emphasizing buyer feedback? Not all supply-side com-

plementors can diversify or scale their offerings. Focusing

on those who can change the former, but not the latter, we

examine how entrepreneurs change their product portfolio

size after the platform design changed to emphasize buyer

feedback. We found that their product portfolio size

decreased following the change, and more so for those with

more positive feedback. While the sales increased for entre-

preneurs after the change, buyer feedback deteriorated.

Our results show how SEPs in emerging economies can fos-

ter entrepreneurship and elucidate the importance of

nonscale-free resources of supply-side entrepreneurs to

better understand platform dynamics.

Managerial summary: Do sellers change the number of

products on offer when the app owner rewards sellers with

high user ratings? While research has examined how sellers

adjust the number of products to get high ratings, little

attention has been paid to sellers with capacity constraints.

Received: 15 February 2019 Revised: 3 May 2020 Accepted: 11 May 2020 Published on: 11 August 2020

DOI: 10.1002/sej.1360

© 2020 Strategic Management Society

302 Strategic Entrepreneurship Journal. 2020;14:302–328.wileyonlinelibrary.com/journal/sej

This is problematic, as sellers on sharing economy apps

often have a limit on the total quantity of products they can

produce. Using data from a Chinese home cooked meal sell-

ing app, we show that sellers decreased the number of

products they sell when the app owner began to reward

high user ratings. The decrease was more pronounced for

sellers with higher ratings. As a result, sales revenue

increased, but user ratings decreased. Implications for prac-

titioners and policymakers are discussed within.

KEYWORDS

microentrepreneurship, nonscale-free resources, platform design,

product portfolio size, sharing economy platform ecosystems

1|INTRODUCTION

The growth of the sharing economy (gig economy, on-demand economy, or peer-to-peer business), exemplified by

Uber and Airbnb, has been enabled by platform settings that facilitate interactions between supply-side com-

plementors and demand-side users (Cennamo & Santalo, 2013; Rietveld & Eggers, 2018; Zhu & Iansiti, 2012). Such

platforms make it easy for participants on the supply side to leverage existing, underutilized assets they already own

to serve a massive potential customer base who wants products and services offered through such assets on demand

(Sundararajan, 2016; Zervas, Proserpio, & Byers, 2017). Although sharing economy platforms are ubiquitous around

the world, their growth and importance have been pronounced in emerging economies; manifest in the fact that Asia

accounts for more than 70% of the ride-hailing market in the world

1

and that China's sharing economy, which

recorded trading volume of RMB 294.2 billion (approximately US$41.7 billion) in 2018, is projected to grow more

than 30% per annum year-on-year until 2022.

2

Two characteristics set supply-side participants on sharing economy platforms apart from those on other plat-

forms. First, participants on sharing economy platforms work whenever and wherever they want in response to exis-

ting demand, eschewing the traditional work format, viz. working Mondays to Fridays from nine to five for a single

employer (Manyika et al., 2016). Second, they face varying degrees of capacity constraints to participate on these

platforms in what and how much they can offer because they leverage existing assets and resources, which are

nonscale-free, subject to opportunity costs (Levinthal & Wu, 2010). While the former has received much attention

from researchers (e.g., Ahsan, 2020; Burtch, Carnahan, & Greenwood, 2018; Sundararajan, 2016), studies on the

nonscale-free resources leveraged by supply-side sharing economy participants, thus constraining their production

capacity, remains conspicuously absent.

Platform owners can embed a clearly defined incentives structure, that is, “rules of the game”(Jacobides,

Cennamo, & Gawer, 2018), in the platform design (Ceccagnoli, Forman, Huang, & Wu, 2012; Claussen, Kretschmer, &

Mayrhofer, 2013) to ensure their success and that of supply-side complementors. Such design can motivate com-

plementors to provide both diversity in offerings as well as quality in those offerings so as to create value for buyers

(Boudreau, 2012; Boudreau & Hagiu, 2009; Cennamo, 2018). A platform design is especially crucial for platforms in

emerging economies, where complementors, faced with intense competition at an early stage, compromise the integ-

rity and quality of the offering, jeopardizing the long-term success of the entire platform ecosystem and its partici-

pants (Chu & Wu, 2018). The general lack of highly specialized business skills or knowledge to analyze complex

information (Karim, 2011; Koo & Eesley, 2017; Thai & Turkina, 2014) among microentrepreneurs in emerging

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