Are online platforms killing the offline star?

Online platforms that facilitate the exchange of goods and services, including delivery services, accommodation, or retail products, have become widespread over the last decade. The COVID-19 shock has further contributed to the accelerated the digitalization of economies. This development has underpinned hopes for a productivity revival. However, significant differences across countries in factors such as access to communication networks and digital skills raise questions about the scope for platform use to underpin broad-based increases in productivity.

This paper documents the diffusion of online platforms across countries and sectors and investigates their implications for firm-level productivity growth, using novel cross-country data on around 1300 platforms, active in 43 OECD and G20 countries over 2013-2019.

The results show that the diffusion of platforms that facilitate the exchange of goods and services is associated with higher labour productivity growth amongst incumbent firms. Specifically, doubling online-platform activity is associated with a 2.3 percentage point higher labour productivity growth on average at the firm level. These gains are attributable to increases in value added and not reductions in employment. The productivity benefits of platform activity are larger amongst small and mid-range productive firms (see figure) and in sectors where the reshuffling of leading platforms is higher – that is, less contestable online-platform markets seem to lower the contribution of online-platform activity to incumbent firms’ productivity growth.

These results suggest that online platforms can generate firm-level productivity gains, supporting technology diffusion for SMEs and facilitating the catch up of less productive firms towards the frontier. They also reinforce calls for policies to promote contestability in online-platform markets.

Click here to go to the paper by Hélia Costa, Giuseppe Nicoletti, Mauro Pisu, and Christina von Rueden.