Marketplace Platforms or Exchanges? Financial Metaphors for Regulating the Collaborative Economy

The terms “sharing economy”, “collaborative economy”, “on-demand economy” and “peer economy” are currently used—in media and other popular literature, and increasingly by state regulatory agencies and academic publications—to describe an emerging class of businesses which mediate, via the Internet, between buyers and sellers of services. Prominent examples include the “ride-sharing” companies Uber and Lyft (which match requests for rides with providers of rides); the residential-space booking companies Airbnb and HomeAway (which connect requests for non-hotel lodging with renters and homeowners); the “P2P” loan services companies Lending Club and Prosper (matching borrowers with independent investors); and the freelance services companies oDesk and Elance (now merged as Upwork). These firms, largely funded by venture capitalists, are not generally buyers or sellers of goods themselves, as in a traditional production market (White 1981); instead, they create networked platforms which serve as “marketplaces” which provide opportunities to buy and sell services—skimming a percentage of the transaction as a middleman—and are thus distinctly less concerned (contrary to their spokespersons’ proclamations) with organizing the actual logistics of trade and exchange.

In this paper I will argue that many of the emergent organizational and regulatory complexities of the marketplace platform—especially with regard to competition and the possibility of cooperative ownership—have already been historically realized, in an equally dramatic fashion, in a completely different organizational domain: namely, that of the securities exchange industry. This field, composed of all major global stock and derivatives exchanges, have in the last fifty years fully transformed from non-profit, member-owned cooperatives empowered by local network effects to publically listed (a.k.a. “demutualized”) companies in a weakened and so-called “fragmented” competitive landscape (Aggarwal and Dahiya 2006). Like marketplace platforms, securities exchanges (among other functions, such as listing new companies) facilitate exchange between buyers and sellers (or their intermediary representative brokers); but they also, in many cases, compete with each other to execute the largest flows of transactions from various investing institutions. For example, the Securities and Exchange Commission’s regulatory mandate of exposing customer limit orders in the late 1990s—in response to evidence of price collusion by Nasdaq dealers (Christie and Schultz 1994)—opened the floodgates for electronic competitors to dominant exchanges. The subsequent tumult of demutualization and mergers/acquisitions radically altered the business model of exchanges (and indeed the legal definition of “an exchange”), inspiring (for example) the symbiotic relationship between the exchange as seller of high-speed data and the practices of high-frequency trading (HFT).  But if the collaborative economy is held by some to be a waystation on the path to “platform cooperativism” (Scholz 2016), we should also understand that in the case of the for-profit exchanges at the technological and conceptual centers of global finance, non-profit “platform cooperativism” came first.

I intend to show, in the case of the securities exchange industry—which began implementing digital technologies to distribute quotations, match orders, and process transactions in the 1970s—that regulatory “codes” and proprietary software “code” have been interwoven in a processual, back-and-forth dialectic for decades. My goal is to connect the historical and theoretical insights of the economic sociology of markets and finance—from the theories of ‘fixed-role’ production markets and ‘switch-role’ financial markets (White 1981a; Aspers, 2007), to notions of economization and marketization (Çalıskan and Callon 2009), to the ‘counterperformativity’ of microeconomic models (MacKenzie 2006)—to both observed and developing regulatory debates on marketplace platforms in specific nations, regions, and municipalities. Through this explicit understanding of marketplace platforms as comparable in their centralized, order-matching structure to securities exchanges, particular tactics emerge as suggestions for state regulators, especially with respect to (a) the sharing of data (to which Uber and Airbnb, for example, have been notoriously averse) and (b) the possibility (and problematics) of self-regulation; in addition, the extent to which these firms do not materially represent a “free market” ideology is also progressively revealed (e.g., the arbitrary discontinuities of Uber’s “surge pricing” algorithms should, in theory, be found unacceptable to economists whose work is founded on the purported Walrasian equilibria of traditional continuous auction markets).

Finally, it must be stressed that the issues of competition and data-sharing with incumbent firms and state actors is but one aspect of the controversies regarding the regulation of marketplace platforms; others include the classification of labor (e.g, as contract workers or full-time employees) and the potential self-regulatory properties of reputational feedback (Federal Trade Commission 2015; O’Connor v. Uber Technologies Inc., 2015; Cohen and Sundararajan 2015). However, I believe that both the commonalities and differences in this comparative study can produce distinctive insights, even with respect to part-time workers whose services would seem unrelated to the anonymous trading of fungible securities. For much as in financial markets, the notions of “buyer” and “seller” can blur in these settings: Lyft’s co-founder and President explicitly envisions the conflation of driver and rider (Bradley 2015). In addition, the empirically-observed “horizontal coordination” of online labor markets (Lehdonvirta, Hjorth, and Graham 2015) may be contrasted with the online collaboration of foreign exchange traders (Preda 2016).

Aggarwal and Dahiya 2006. “Demutualization and Public Offerings of Financial Exchanges.”
Aspers 2007. “Theory, Reality, and Performativity in Markets.”
Bradley 2015. “Lyft Drivers Get a Party, but Still No Benefits.”
Çalıskan and Callon 2009. “Economization, Part 1: Shifting Attention from the Economy towards Processes of Economization."
Christie and Schultz 1994. “Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?”
Cohen and Sundararajan 2015. “Self-Regulation and Innovation in the Peer-to-Peer Sharing Economy.”
Federal Trade Commission 2015. The “Sharing” Economy: Issues Facing Platforms, Participants, and Regulators.
Lehdonvirta et. al. 2015. “Online Labour Markets and the Persistence of Personal Networks Evidence From Workers in Southeast Asia."
MacKenzie 2006. An Engine, Not a Camera: How Financial Models Shape Markets.
O’Connor v. Uber Technologies Inc. 2015, 13-Cv-03826, U.S. District Court, Northern District of California. 2015.
Preda 2016. Noise. Living and Trading in Electronic Finance.
Scholz 2016. “Platform Cooperativism: Challenging the Corporate Sharing Economy.”
White 1981a. “Production Markets as Induced Role Structures.”
———. 1981b. “Where Do Markets Come From?”