The Gig Economy

How the supply and demand rule breaks down when a middleman enters the equation

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This is a summary of a story originally on Fuqua School of Business.

As supply grows, so does leverage.

That is a defining principle of the modern gig economy that platform companies across the globe are attempting to duplicate.

For instance, when more Uber drivers compete for rides, the platform can take a larger cut of the fare and pay its drivers less.

But a new study co-authored by Duke University’s Fuqua School of Business Professor Can Zhang determined the principle breaks down when a middleman steps in.

In their paper, the co-authors explored sharing economy platforms that operate in underserved areas with poor internet access, fragmented demand, and customers who can’t book or pay digitally.

The researchers partnered with Hello Tractor, a sharing-economy platform that connects tractor owners with small farmers in rural Africa.

In those instances, the platforms rely on local agents — middlemen — who go door to door, aggregate customers and submit requests as their proxy.

The researchers determined that when middlemen become involved, expectations about platform economics should be reconsidered, including paying middlemen more and lowering a company’s commission.

“The size of the market depends on the booking agents who collect demand,” Zhang explained. “When you have more supply, you want to incentivize them more.”

Without tractors, small farmers in Africa rely on animals and manual labor that affect crop yields, soil structure, food insecurity and employment. Owning a tractor is cost prohibitive for the farmers. Sharing the equipment is a natural solution.

The middlemen fill the technology gap by going from farm to farm and submitting aggregated requests to the platform company. Ultimately, their work determines how much demand is aggregated and realized.

While the Uber model might not be applicable, sharing economy platforms can tweak that model and make it work in underserved markets to reach customers who do not have access to technology..

To learn more about the study, go to Fuqua School of Business.