© 2017, American Marketing Association

Journal of Marketing
PrePrint, Unedited
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permission of the American Marketing Association.

Lateral Exchange Markets: How Social Platforms Operate in a Networked Economy

Rebeca Perren
Assistant Professor
Department of Marketing
College of Business Administration
California State University San Marcos
333 S. Twin Oaks Valley Rd.
San Marcos, CA 92096
Email: [email protected]
Phone: 760-750-8568

Robert V. Kozinets
Jayne and Hans Hufschmid Professor of Strategic Public Relations
and Business Communication
University of Southern California
Annenberg School for Comunication and Journalism, and
Marshall School of Business
3502 Watt Way
Los Angeles, CA 90089
Email: [email protected]

Acknowledgements: This research is based on the first author’s doctoral dissertation research,
which was conducted at the University of Central Florida. She expresses her deepest gratitude to
her dissertation advisors Carolyn Massiah and Xin He for their valuable insights on earlier drafts
of this manuscript. Both authors wish to thank a supportive and patient Editor and Area Editor,
and three very insightful and generous reviewers for their invaluable guidance, as well as Cinthia
Satornino, Elizabeth Grauerholz and Ata Tafaghodi Jami for their constructive comments, and
the Florida Education Fund McKnight Fellowship Program for their research support.
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Lateral Exchange Markets: How Social Platforms Operate in a Networked Economy

Abstract

Lateral exchange markets (LEMs) are sites of technologically intermediated exchange between

actors occupying equivalent network positions. To develop an enriched understanding, we

develop a more broad-based and differentiated understanding of peer-to-peer, sharing, and

access-based markets. We focus on two key axes that consider the extent of consociality and

platform intermediation. Crossing levels of these attributes leads to the theoretical deduction of

four ideal types—Forums, Enablers, Matchmakers, and Hubs. Each type provides value in a

different way. Forums connect, Enablers equip, Matchmakers pair, and Hubs centralize. Twenty

organizational cases reveal insights into failure, adaptation, and success. LEMs shift

responsibility for personal and exchange security to relevant personal actors, to institutions, or to

the governing algorithms of technology platforms. Extending the general proposition that

sociality increasingly infuses market logics, our findings suggest a new frontier where social

resources and software platform algorithms interact as operand resources whose negative

consequences, such as opportunism, require careful management through assurances and

institutional arrangements matched to the type of LEM operation.

Keywords: access-based consumption, algorithm marketing, collaborative consumption,

consociality, institutional theory, lateral exchange markets, opportunism, peer-to-peer markets,
platform economics, service marketing, sharing economy, service dominant logic
 3

The rapid growth of peer-to-peer markets is inescapable. In fact, a sizeable majority of

American adults have already used them (Smith 2016). However, there are many gaps in our

understanding. First, we have no general agreement about what to call these markets. Belk (2014,

p. 1595), mentioning companies such as Airbnb, Zipcar, and Freecycle, groups these and other

“related business and consumption practices” under the umbrella term “the sharing economy”,

yet Arnould and Rose (2016, 80) argue that the use of the term “sharing” obscures their

economic status. Second, research thus far has investigated only particular kinds of peer-to-peer

markets. For example, in their study of Zipcar consumers, Bardhi and Eckhardt (2012, p. 881)

focus only on “access-based consumption”, defining it as “transactions that may be market

mediated in which no transfer of ownership takes place”. Another study, Benoit et al. (2017,

219), focuses only on “collaborative consumption”, and concludes that platform providers’

“main role is matchmaking”. Because only particular manifestations of these markets, such as

those involving access-based consumption or collaborative consumption, have been studied, we

still know very little about the breadth and diversity of the general phenomenon, or about how

generalizable conclusions gained studying one type might apply to other types. Third, because

prior studies have been limited in scope, they have been unable to compare and contrast different

types of markets. Thus, we currently have very limited understanding about the underlying

characteristics and relative effectiveness of different forms of peer-to-peer markets.

Addressing these research gaps, our paper offers an improved conceptualization of the

phenomenon, develops an empirically-based typology, and explains how understanding the

differences between types of peer-to-peer markets can lead to better marketing theory and

managerial practice. Our core research questions seek to clarify the conceptualizion and

definition of these markets and to specify their general principles. How can we best understand
 4

these new markets and the various forms in which they manifest? What are some of their most

important underlying characteristics? How do the different types compare to one another in

effectiveness? How do these aspects affect our theorizing and management? We answer these

questions by first defining and differentiating our core conceptual contribution, lateral exchange

markets, and providing a typology. We subsequently map configurations of successful and

unsuccessful peer-to-peer businesses onto the typology. Finally, we discuss how our findings

alter, guide, and extend extant understanding and managerial practice.

Theory

Defining and Differentiating LEMs

To make a coherent contribution to our understanding of these markets, we must first

clearly differentiate, specify, and define our focal concept, which is the use of a technology

platform to connect a network of economic and social actors. The phenomenon, or aspects of it,

have been accorded many different names, including “the sharing economy” (Belk 2014),

“collaborative consumption” (Benoit et al. 2017), “commercial sharing systems” (Lamberton and

Rose 2012), and “access-based consumption” (Barhdhi and Eckhardt 2012). We provide Table 1

in order to clearly specify the conceptual definition of each concept and also clearly distinguish

them from our article’s core concept of lateral exchange markets.

----Insert Table 1 about here---

Our comparison is intended to advance more coherent conceptual thinking. Although past

scholarship attempts to understand a fairly broad phenomenon, all of these studies fail to

distinguish and conceptualize important differences within it. Furthermore, the emphasis on

technology platforms is limited. Although Belk (2014, 1595) calls the sharing economy a

phenomenon “born of the Internet age” and refers to their companies as founded on “disruptive
 5

technologies” (1599), and Benoit et al. (2017) develop platform providers as a medium of

connection, none of these articles makes technology platforms, or their social affordances,

central to their conceptualization. Belk (2014) includes transfers of ownership, such as the sale of

property, in the sharing economy, but all the other concepts exclude them. However, we see no

reason to exclude markets that facilitate sales between peers, such as eBay, from a more general

conception. Additionally, some of these concepts include sharing and gift-giving, which take

place outside conventional financial markets, while others exclude them.

We question the use of the term “peer” to refer to these market types, as they often

include professional sellers and buyers. For example, a 2014 report based on New York City

records revealed that professional property owners and managers made 37% of all revenue on

AirBnB (New York State Office of the Attorney General 2014). In a study of its drivers, Uber

found that 18% of them were professionals who previously or concurrently drove taxis or

limousines (Uber Newsroom 2015). Given the importance of professionals to these networks and

the lack of recognition in prior conceptualizations, avoiding the implication of amateur status

accompanying the use of the term “peer” is advisable. Instead, we use the term “lateral

exchange” to signify exchanges occurring between actors at equivalent levels. Even though some

of the actors in a given network might be professionals while others might be amateurs, their

participation through the exchange platform renders them roughly equivalent. For example, one

specific Uber driver can play the same role on the company’s platform as any other. A driver can

also be a customer of Uber, and vice versa.

Therefore, in contradistinction to prior conceptualizations, we seek to build a general

understanding about these markets that conceptualizes them as: (1) a broad marketplace

phenomenon with internal differences, (2) a manifestation of technology platforms linking

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actors, (3) including the possibility for exchange of ownership and not merely access, (4)

excluding sharing and gifts, and (5) including both amateur (“peer”) and professional actors. We

define a lateral exchange market (or LEM) as a market that is formed through an intermediating

technology platform that facilitates exchange activities among a network of equivalently-

positioned economic actors. Our conception emphasizes the important role of both platform and

network actor, spotlights commercial exchange, and includes buying, selling, renting, trading,

bartering, and swapping. However, as we explain in the section following, excluding gifting and

sharing from LEMs does not mean that we neglect the social nature of these exchanges.

LEMs are Technological, Economic, and Social Exchange Systems

Contemporary markets such as LEMs are “social arenas where firms, their suppliers,

customers, workers, and government interact” (Fligstein and Dauter 2007, p. 107), influencing

the creation, distribution, and consumption of goods and services by human, material, and

technological actors. Lateral exchange markets are a new form spawned from the potential of

contemporary digital technology to coordinate and monetize networks. With their technology

platforms combining social actors into various exchange-related configurations, LEMs do not

fall neatly into existing categories, but create new legal categories and institutional practices. As

such, the nature and governance of their “hybrid and ambiguous status” (Arsel and Dobscha

2011, p. 66) is unclear.

Our approach builds on Adler’s (2001) important insight that the increasingly

knowledge-based economy is leading to hybrid market forms which differ in fundamental ways

from market forms of the past. Adler (2001, p. 218) proposes that many of these ‘knowledge

economy’ hybrids use methods of “community-based governance”, conceptualized as “a third

 7

coordination mechanism that can be combined in varying degrees with price and authority.”

Although not an explicit focus of this article, we are cognizant of the manner in which the

introduction of new forms of business creates crises in moral, cognitive, and pragmatic

legitimacy (Coskuner-Balli and Ertimur 2017) that are often settled using changes to the

regulative legal system (Denegri-Knott and Tadajewski 2017). In the following two sections, we

explore two elements of these changes in the way markets coordinate buyer and seller behavior.

Managing Sociality in LEMs

Complex social relationships embed value creation in any market (Lusch and Vargo

2014; Vargo, Wieland, and Akaka 2015). Arnould, Price, and Malshe (2006, p. 94) include

“networks of relationships” that encompass traditional relations such as families, and ethnic

groups, and emergent ones such as consumer tribes and brand communities as “social operant

resources”. The purpose of this section is to develop a clearer understanding regarding how

recognizing different forms of social operant resources can enhance our understanding of LEMs.

We do this by defining sociality and consociality, and explaining how they are relevant to LEMs.

Sociality is a term used to refer to the universal tendency of people to associate in groups

and to form cooperative relationships with other people (Wittel 2001). Sociality can be

distinguished from Schutz’s (1962) notion of “consociality,” which refers to a state in which two

or more people are co-present in space and time. Hannerz (2016, p. 151) extends this notion to a

contemporary frame in which “consociality is defined by co-presence of both—or either—

physical and virtual [interaction].” We thus define consociality as the physical and/or virtual co-

presence of social actors in a network, providing an opportunity for social interaction between

them. We recognize, ultimately, that the rules governing social interaction are institutional,
 8

governed by procedures and norms such as current cultural practices, public opinion, legal

systems, and certification and accreditation bodies (Scott 1995).

The technological elements of LEMs, which bring people together to create value, also

create new forms of social connection and experience and thus new types of social operant

resources. Wittel (2001, pp. 71–72) terms this new, network-based form of social connection

“network sociality”, describing it as “deeply embedded in technology; it is informational,

ephemeral but intense.” Rainie and Wellman (2012) also find “networked individualism” to be

more individualistic and opportunistic than traditional sociality. Miller (2008, p. 390) suggests

that this type of sociality is “an instrumental or commodified form of social bonding based on the

continual construction and reconstruction of personal networks or contacts” (cf. Cova and Pace

2006, p. 1101; Arvidsson and Calliandro 2015).

LEMs facilitate different kinds of social relationships. Network actors sometimes

participate in novel social situations, such as sleeping in someone’s spare bedroom through

AirBnB, or using Snapgoods to lend their power tools to a stranger for a fee. These novel

situations are social, but they are also novel, instrumental, commodified, opportunistic,

intermediated, and ephemeral. There are situations in which the closeness of sharing a room, a

ride, or a set of messages can also inspire communal feelings of affability, friendliness, and

social satisfaction (Dyck 2002). In related studies of online businesses, trust is sometimes linked

to sociality. Examining the successful provision of services online, Gefen and Straub (2003, p. 8)

find that providing “socially rich exchanges” has a positive effect “on consumers’ trust and on

their subsequent intentions to purchase services.” These findings lend support to the notion that

LEMs might employ these new and different forms of sociality as a form of what Adler (2001)

terms “community-based governance”. In this article, we distinguish between types of LEM

 9

based upon the possibilities that LEM’s varying combinations of virtual and in-person social

interactions influence trust and govern exchanges. In the section following, we highlight another

important source of difference, the technological intermediation of the platform.

Managing Exchanges in LEMs

In addition to influencing trust using sociality, LEM companies have added opportunities

to manage exchanges using technology platforms. Trust in a technology platform assumes many

forms, including: (a) trust in the technology platform, as with Lu, Wang, and Hayes’ (2012)

study of a consumer-to-consumer e-commerce site; (b) trust in reputation-based algorithms, as

with Aberer and Depotovic’s (2001) theorizing about managing trust in peer-to-peer

environments, or (c) trust in the objectivity of computer algorithms, which, as O’Neil (2016)

demonstrates, can be blind to faults in these heuristics. LEM buyers and sellers usually have no

prior experience with one another, and occupy roughly equivalent positions in the network.

Platform intermediation therefore plays an important role in mitigating duplicity, incenting

trustworthy behavior, and inspiring trust in the exchange. We term this element platform

intermediation, defining it as the deployment of a software platform and its various digital tools

as an intermediary that manages and coordinates the exchange between network actors. In our

findings section, we investigate the extent to which software platform and consociality

effectively intermediate lateral exchanges and influence market outcomes. But first, we describe

the method we employed for our study.

Method

Data Collection

This article was the result of a six year long, multi-sited “market-oriented” ethnographic

investigation (Arnould and Wallendorf 1994). The ethnography included participant observation,
 10

interviews, and netnography. Online netnographic activities followed the guidelines of Kozinets

(2015) and were interrelated with the ethnography. We collected screenshots, news articles, press

releases, and other data from 193 different LEM platforms, resulting in 2,168 pages of collected

data. To be included in our data set, the platform or site needed to use networked technology to

organize exchanges and serve as an intermediary between actors at equivalent network positions.

Accordingly, firms that did not use networked technologies (e.g., a local flea market) or that

served as an online intermediary between traditional business enterprises and individuals (e.g.,

listings for local businesses such as Angie’s List) were excluded. We provide a list of the

original 193 cases in the web appendix. The web appendix also highlights the 31 LEMs within

which we engaged in ethnographic participant observation.

Over a six-year period from 2010—2016, the first author ethnographically engaged with

thirty-one LEM platforms, and generated 650 pages of field notes about the accompanying

experiences. LEM participation included buying and selling merchandise, hiring labor, renting

vehicles, using ride share services, staying in homes, trading electronics, and swapping

household items. In situ interviews, included in the field notes, were supplemented with another

thirty-one separate interviews with university students actively participating in LEMs. Interviews

were relatively short and focused by consumer research standards, lasting from 10 to 40 minutes

in duration. They were recorded and subsequently transcribed, resulting in an additional 228

pages of data.

Two Stages of Data Analysis: Typology Development and Principle Observation

Our intention in this article is: (1) to advance understanding by providing an organized

typology of contemporary LEMs and (2) to explain, using data, how different structuring

elements work in practice to provide different LEM outcomes. Our research protocol had two
 11

corresponding stages. In the first stage, we examined a large number of LEMs and began coding

them and discussing their common elements and differences. We tried numerous different

descriptors and ideas to help explain the patterns we began to see across different LEMs. As we

collected more data, and held more discussions, we dropped initial ideas (such as peers,

collaborative consumption, ecosystems, extent of interaction, sociopetal systems, and social

commerce) in favor of other ones (such as lateral exchange, sociality and consociality). We

sought negative cases, and revised or abandoned theoretical notions based on whether they fit or

not. We subsequently used those dimensions to construct an ideal type classification. The

purpose of an ideal type is to provide an abstract ideal or typology against which actual

occurrences of a phenomenon can be compared (Blalock 1969). Thus, in our second stage, we

collected additional data from 20 LEM cases and then examined, classified, and organized them

into findings. Table 2 provides a description of the selected 20 firms along with information on

industry, scope, year founded, and similarity to ideal type. This type of systematic comparison of

actual cases to ideal types is commonly used across the social sciences, for example in Kvist

(2007).

--- Insert Table 2 about here ---

To analyze this more detailed data about a smaller number of cases, we followed the

comparative process described by Stake (2006). Throughout, we followed a process of induction,

developing “a causal model built by someone like a forensic pathologist, a detective or an

historian, using a progression of inferential analyses to run an evidential trace out to its end

point” (Miles and Huberman 1983, p. 329). We systematically compared case data and emergent

framework until our theoretical position was both internally consistent and externally able to

accommodate new entries to the industry and novel events occurring in a constantly changing
 12

empirical field. During the multiple rounds of combined ethnographic data collection and

analysis, stretching over the six years of the project, we returned to our field sites to investigate

sites, gather additional detail, seek nuance, and find disconfirming evidence. Throughout, our

research focus was “informed by a variety of shared communications, observations, and formal

or informal hypotheses and generalizations” (Belk, Fischer, and Kozinets 2013, 168). Our

procedure is in keeping with accepted principles of mainstream qualitative data analysis and

interpretation. We now turn to our findings, which explore the underlying structure of LEMs.

Lateral Exchange Markets

The Underlying Structure of LEMs

Results of the Analysis. Our analysis of 193 LEM companies reveals two structural

patterns. First, LEMs are distinguished by the implementation of platform intermediation.

Second, the form of the LEM has the effect –intended or not—of variously constricting or

facilitating consociality between network actors. These two dimensions serve to effectively

classify and explain the general principles behind LEMs. We devote the remainder of this section

to explaining and illustrating them.

Extent of Platform Intermediation. All LEM companies intermediate exchanges using a

software-based technology platform. There are, however, differences in the extent to which the

technology platform rather than the exchange partners are involved in the exchange process. Our

typology’s first organizing dimension, platform intermediation, surfaces from observations

regarding the varying extent to which the software platform and its attendant algorithms and

tools manage and coordinate exchanges. Freecycle is an example of an LEM in which the extent

of platform intermediation is low. Freecycle provides a basic central web-site connecting those

who wish to offer for removal various sorts of used goods (such as old televisions or furniture)
 13

with those willing to pick up these goods. Freecycle provides a message board platform and a set

of guiding rules, but offers little else to manage the exchange. Under the supervision of local

board moderators, human actors communicate, negotiate, organize, complete, and oversee their

exchanges, relying on the board’s rule set as well as their own guiding norms.

At the other end of the platform intermediation spectrum are companies whose platforms

coordinate, monitor, and regulate almost every element of their network’s exchanges. The car-

rental LEM Turo has high platform intermediation. It has a very strict screening process for car

renters. Further, it offers those who rent the cars several structural reassurances such as high-

quality service and product standards, extensive reviews, customer service including 24/7

roadside support, and $1 million in included liability insurance. Some of these elements can be

conceived as legitimate forms of technical rationality that network actors perceive or assume to

be “desirable, proper, or appropriate” (Suchman 1995) within the LEM system.

Extent of Consociality. Across LEMs, there are important differences in the extent to

which they allow or constrain consociality. Some LEMs permit relatively free-flowing

interactions as actors communicate, negotiate, and coordinate, resulting in (perhaps unintended)

social benefits. The ride-sharing service Lyft, for example, exhibits high consociality. A

passenger booking a ride in on the Lyft app sees a photograph of their driver and learns about

their home town and musical tastes. On entering the vehicle, they are greeted by a glowing

electronic mustache displaying a greeting featuring their name. The Lyft driver often offers

bottled water and chewing gum and asks about the rider’s day, reciprocally inviting

conversation. At the end of the ride, payment happens automatically and invisibly. Afterwards,

the app prompts the rider for a quality rating and offers several options to tip the driver. On its

website, Lyft (2012) claims to have “produced thousands of friendships and even one marriage.”
 14

Occupying the low consociality end of the spectrum are LEMs that minimize or even

eliminate social interaction between network actors. Lending Club allows actors to invest in the

loans of other network actors, but anonymizes lenders and borrowers, providing no opportunities

for communication or social interaction. Interestingly, some LEM loan companies offer higher

consociality formats. Prosper.com provides borrowers with “a voluntary open-text area” that

network actors used to communicate an “identity narrative” that has positive effects on loan

funding—but also leads to deception (Herzenstein, Sonenshein, and Dholakia 2001, p. 139).

study. Whatever the format, it is noteworthy that, although the LEM provides opportunities for

social behaviors, the enactment of those behaviors is optional and may not occur.

Crossing the Two Dimensions. Crossing extent of platform intermediation with extent of

consociality yields four distinct market configurations for lateral exchange: Forums, Enablers,

Matchmakers, and Hubs. Managing software interface and co-presence allows LEM companies

to transform equivalently-placed network actors’ “microspecialized competences” (Lusch and

Vargo 2006, p. 415) into legitimate service exchanges. Figure 1 illustrates these four types.

--- Insert Figure 1 about here ---

Four Types of Lateral Exchange Markets

Distinct Value Propositions of LEM Types. Each LEM type represents a specific

configuration of a service ecosystem (Vargo, Wieland, and Akaka 2015). Forums, Enablers,

Matchmakers, and Hubs act as intermediaries that contribute to between-actor value creation by

offering distinct value propositions through sociality and technology deployment. As

intermediaries, LEM firms offer two potential benefits: creating the market and lowering

transaction costs. In this section, we detail the structure and process that each LEM type uses to

offer these benefits to network actors.

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Forums Connect Actors. Forums are LEM configurations that facilitate the flow of

services directly between actors (actor ↔ actor), providing low platform intermediation and high

consociality. Carpool World, a company that provides drivers and passengers with carpool

matching software, is a good example. Carpool World’s software platform performs one basic

task: enabling interested individuals to contact and meet new people who may have matching

transportation needs or abilities. Carpool World’s platform creates the market. Everything else—

all the communication and coordination involved in making the actual carpool happen—is left up

to the networks’ actors. Of course, with passengers and drivers sharing time and space together

during car pool rides, co-presence and consociality is high. Service provision at Carpool World

flows directly between actors as they coordinate and negotiate schedules, locations, and payment

terms. As we see from the example, forums lower the search costs of actors incur trying to find

each other in a broad and disorganized market. Consequently, the core value proposition of a

Forum LEM is to connect actors.

Enablers Equip Actors. Enablers are configured to help individual actors provide services

to other actors (LEM firm → actor → actor). They have relatively low levels of platform

intermediation (i.e., they minimize use of their technology platform to coordinate the transaction)

and low levels of consociality. An example of this Enabler type is Poshmark, a company where

new and used fashion goods are sold and traded. Poshmark does not handle the exchange itself,

but instead equips actors for exchange using a smartphone-based software application. The app

simplifies the act of photographing, describing, and listing items for sale. For example, the app

offers different categories and shopping themes to organize the listing. The app also produces

addressed, prepaid shipping labels to print and place on packages. Typical of the Enabler type,

little or no direct interaction or communication occurs between Poshmark’s buyers and sellers.
 16

Enablers such as Poshmark lower search costs as well as decision costs, such as resources

expended evaluating terms and assessing expected performance. As a result, the core value

proposition of an Enabler LEM is to equip actors for service provision.

Matchmakers Pair Actors. Matchmakers mediate the service flow between providers and

beneficiary actors (actor ← LEM firm → actor) and are characterized by high platform

intermediation as well as high levels of consociality. An example of a Matchmaker type is

DogVacay, a company that matches pet owners with animal caregivers. DogVacay’s platform

employs a quality control process that includes interviews, training, and reference checks on

potential caregivers. It also handles the payment, and provides pet insurance, a money back

guarantee, and 24/7 customer support. Pet owners and caregivers are encouraged to learn about

and communicate with one another, and the company requires active caregivers to provide daily

photo updates featuring the pet. In addition to lowering search and decision costs, Matchmakers

such as DogVacay lower the surveillance costs that usually result from monitoring other actors

(e.g., by requiring daily photo updates). The core value proposition of a Matchmaker LEM

comes from providing a pairing of exchange actors.

Hubs Centralize and Standardize Service Flows. Hubs act as the central point in the

exchange, resulting in two discrete and bidirectional flows between platform provider and actors

(actor ↔ LEM firm ↔ actor). Combining high platform intermediation with low consociality,

this configuration hides the service flow between equivalent actors behind its own platform.

Lending Club, introduced previously for its constrained consociality, is a strong example of a

Hub type. Prospective borrowers apply for loans online and the Lending Club’s technology

leverages its own algorithms, along with available credit data, to assess their risk level and assign

them corresponding interest rates. On the other side of the exchange, investors use Lending
 17

Club’s platform to build diversified loan portfolios that earn monthly returns based on

differential levels of borrower risk. The service flows directly between borrowers and the

Lending Club, and investors and the Lending Club, with borrowers and lenders never interacting

directly. Hubs like the Lending Club lower search, decision, and surveillance costs, but also

lower the enforcement costs arising from ensuring that actors meet performance expectations.

Thus, the core value proposition of a Hub LEM is to centralize and standardize service flows.

With the different value propositions of the four types of LEM explained, our findings now turn

to a detailed examination of the empirical enactment of their general principles.

Empirical Cases and General Principles

Cases Illustrating Complexity, Competence, and Collapse

Contemporary business is far more complex and dynamic than our models can

accommodate. This fact explains why we need to empirically explore simplifications such as

typologies in order to comprehend reality. In the remainder of our findings, we examine eight

cases—two from each LEM type. Four are successful and four have either failed or been forced

to radically change. As a starting point, we offer Figure 2, which categorize each one of our 20

detailed LEM cases within an ideal type classification and dimensionalize it in terms of its

consociality and platform intermediation. Benefitting from the contextual richness of our

ethnographic method, our findings demonstrate and organize the empirical complexity of LEMs.

In the following four sections, we again visit each of the LEM types in turn, closely examining

one successful case and one failure for insight into their general operating principles.

--- Insert Figure 2 about here ---

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Forum Cases

Forums as Social Markets. The Forum LEM type is distinguished from the other types by

having the most social user experience, wherein individual actors organize many aspects of their

exchange. The social experiences in this platform type are often characterized by offline in-

person meetings, such as picking up goods from someone’s home or riding in someone’s car.

Because Forum exchanges are unmediated by the LEM company and its platform, trust is rooted

in interpersonal social exchange, which includes virtual communication. We discuss these

elements with two case study examples, Craigslist and Zimride. Craigslist is one of the most

long-running LEMs, but has been plagued by safety concerns. Zimride, after limited initial

success, revamped its platform and business model, providing a useful negative case example.

Craigslist. Craigslist is a well-known bulletin board site that typifies the Forum LEM

configuration. Founded in 1995 as an e-mail distribution list between friends, the platform

currently has operations in 70 countries. Craigslist provides a central location for actors to

connect in order to fill and find jobs and housing, sell and trade goods and services, look for

romance and friendship, and much else. Employing a sparse, utilitarian design that relies on the

individual content of its users, Craigslist is a decentralized system with minimal platform

intermediation.

Relying on high levels of consociality to mitigate trust concerns, Craigslist encourages

network actors to “deal locally with folks you can meet in person—follow this one rule and

avoid 99% of scam attempts” (Craigslist 2017). However, personal meetings for the purpose of

exchange entail heightened personal risk. Rules of conduct are mostly implicit. In recounting

their exchange experiences on Craigslist, our interview informants relate numerous uncertainties
 19

about the norms governing the exchange: “When should the money be exchanged? Should the

item be inspected first? Is it ok to negotiate the price?” (Personal interviews, 03/2013).

These uncertainties lead to continuing challenges for Craigslist users. However, this level

of ambiguity is typical for the Forum configuration. Delegating exchange responsibility to

individual actors, Craigslist has a prominent section of its site devoted to tips about avoiding

scams and ensuring personal safety. Some Craigslist users also assume a role as the platform’s

watchdogs by monitoring posted content and flagging posts that are interesting for positive

reasons (i.e., best of Craigslist) or those that are prohibited or suspect and should be removed.

However, much of the controversy surrounding Craigslist comes from the unintended side

effects of its consocial affordances, which actors have used to promote services such as

prostitution and which have ominously been linked to 101 murders (Dewey 2016).

Zimride. When it was founded in 2007, Zimride originally offered its ride-sharing service

only to university students sharing their rides back home with other students. Zimride’s origins

in university carpooling meant that a social experience was part of the service’s appeal.

Emphasizing consociality, the platform connected people who had similar Facebook friends,

worked at the same company, or went to the same school (Carpenter 2011). The platform even

sought to match people with similar smoking preferences and musical tastes (ibid).

Zimride expanded from a university market to serve business clients, and then the general

public (Snider 2012), eventually launching the first public ridesharing app called “Lyft” in May,

2012. Desperately seeking profitability, the company began offering many different options.

Payments could be processed directly by the Zimride platform or cash could be used. In either

case, Zimride did not offer refunds or offer any other guarantees. The company claimed to
 20

provide driver and rider verification. However, this procedure did not include actual background

screening but only required a working e-mail account (Lobel 2016).

Zimride struggled for several years because it failed to operate coherently as an LEM

Forum. It had ambiguously created an LEM company that had both high intermediation

(payment processing and oversight) as well as low intermediation (cash payments and minimal

oversight). It fostered mistrust by offering the co-presence of a shared ride to the general public,

offering safety assurances, and then failing to properly vet riders and drivers. As a result, the

company was unable to sufficiently monetize the value-adding connections it enabled.

In 2013, the company sold most of its assets to Enterprise Rent-a-Car. Enterprise

renamed the company “Zimride by Enterprise” and promptly addressed its security concerns by

closing public access, offering stronger background checks, and centralizing reviews. The

company clarified the payment situation with stronger platform intermediation—cash payments

were no longer allowed. With stronger platform intermediation and better management of the

risks of co-presence, Zimride by Enterprise became a viable LEM business.

Enabler Cases

Equipping Actors for Trustworthy Exchanges. Enablers provide a group of network actors

with a marketplace, equip them in different ways, and set broad exchange rules. They do not

enforce those rules, leaving execution to network actors. With low consociality and low platform

intermediation, gaining actors’ trust can be problematic. Although many Enablers offer some

way for actors to communicate with each other (e.g., comments section, direct message, user

forums), most transactions are processed with limited communication. To illustrate and develop

our understanding of this LEM type we present findings from a successful example, Kickstarter,

and ThredUp, a firm that failed as an Enabler but later reinvented itself as a Hub.
 21

Kickstarter. Kickstarter is a crowdfunding platform for creative projects such as films, art

works, books, music, video games, and gadgets (Mitra and Gilbert 2014). The LEM has been

successful and influential, funding over 100,000 projects with more than $2 billion pledged

(Kickstarter 2017). The system is decentralized, with minimal involvement in and coordination

of the transaction. However, Kickstarter’s platform provides a template for project creations that

standardizes the creative project’s promotion. Creators use the provided templates to build their

project pages, shoot videos, brainstorm rewards for financial backers, set funding goals, and

choose deadlines. When completed, the crowdfunding page can be shared and promoted to

financial backers both on the platform and using other social media.

Just as Craigslist manages the risks of its low platform intermediation by educating

actors, so, too, does Kickstarter. Kickstarter School educates creators about the best practices to

produce videos and create sponsor rewards, as well as to design, manage, and advertise their

projects. Kickstarter posts prominently on its website that each project is independently created

and explains that actors have “complete control over and responsibility for their projects”; the

firm further clarifies its role as “a platform and a resource” and advises that it is not involved in

the development of the projects themselves (Kickstarter 2017). The lack of direct involvement in

project development, promotion, and management, as well as dispute resolution, is relevant to

our classification and understanding of the firm as an Enabler type.

Consociality is constrained on Kickstarter. However, social presence remains salient.

Rather than permitting interaction between creator and financial supporters, potential backers are

directed to their profiles, including records of prior project funding. Although avenues for more

extensive interaction between actors are available, a type of “para-social interaction” (Horton

and Wohl 1956) similar to the one-sided attachment felt between fans and celebrities develops.
 22

For example, our netnography studied a number of Kickstarter campaigns, including “Lucky

Girl”. Lucky Girl, a popular indie pop-folk artist had already enjoyed several small hits and

appealed to the Kickstarter community requesting funding for a new solo record. “Backed by a

very friendly video where she shares her life struggles with motherhood and surviving cancer,

she explains that, now that her kids are out of babyhood, she is ready to ‘reclaim something,

some sense of myself as my own person.’” (Author fieldnotes, 5/2016). Although there was very

little communication flowing back to Lucky Girl from other network actors, she achieved and

then exceeded her funding goals, raising over $53,000 in near-record time.

The Lucky Girl campaign illustrates how network actors take full advantage of the

platform’s interface to create a social identification within the Enabler’s less interactive format.

Those asking for creative funding will use their personal values and identity cues (such as being

a talented artist trapped in the life of a struggling mother) in order to create a sense of

identification and ferment alternate forms of connection. Project backers on Kickstarter learn

about creators’ background by looking at their bios, reading their narratives, visiting their

websites, and examining whether other projects have been backed. Although Kickstarter may be

low in co-presence, Mitra and Gilbert’s (2014) research suggests that skillful use of language is

important element, with the use of socially-charged phrases predicting significantly greater

funding success.

ThredUP. Founded in 2009, thredUP was originally set up as online swapping platform

for men’s shirts. However, this turned out to be a limited market. Beginning a long line of pivots,

the company moved towards a focus on men and women’s shirts, and then settled upon

children’s clothing. In a 2010 press release, the company described its offering in this way:

“thredUP kids combines the best features of some of the most popular sites on the web: Like
 23

Netflix, parents can queue up a box of gently used clothes to receive. Then, similar to eBay,

members build virtual boxes of clothing to exchange. . . . The marketplace facilitates exact

matches, ensures quality and remedies the lack of coordination that plagues offline clothing

swaps. The service is a complete end-to-end solution for busy parents” (PR Newswire 2010).

As an Enabler, the company created a marketplace for people to trade boxes of used

children’s clothing directly with one another. It offered tools for reporting and rating quality,

style, size, and gender, equipping parents with what it termed a “best-in-class interface” (PR

Newswire 2010). However, after two years in business, three major problems were evident. First,

there needed to be additional monitoring. Leaving quality and value assessments in the hands of

sellers led to a very uneven offering. Second, the need to trade entire boxes of used clothing was

unwieldy. Finally, the commission structure was proving to be unprofitable.

Increasing the extent of its platform intermediation, thredUP introduced a new offering

which they termed “Concierge”. Company communications described it this way: “customers

request a pre-paid, ready-to-ship recycling bag. They then fill the bag with their children's

outgrown items, put the bag on their doorstep, and thredUP handles the rest. At thredUP's

processing facility, expert consignors inspect items and reward senders based on the quality and

quantity of clothes returned. Similar to consignment, the amount paid to the sender varies by

item type, brand, size and season - up to $5 per piece. All items that meet quality standards are

then resold via thredUP's online secondhand marketplace” (BusinessWire 2012).

Our fieldnote excerpts reveal delight with the end product of the sales process, facilitating

trust in the exchange: “I ordered all the clothes for my daughter this Christmas in one shot. I

browsed and searched thredUP’s site by brand, size, style, age, gender, and curated seasonal

selections. All the items I ordered came carefully folded, wrapped in tissue paper, attached with
 24

tags that read ‘Renewed with love,’ packed into a signature polka-dot box, and sealed by a

sticker with the message ‘Enjoy!’” (Author’s field notes, 12/2011). Note that thredUP’s new

interface, re-packaging and tagging now emulate the norms of other large online retailers.

Storytelling and other interaction between people exchanging their children’s secondhand

clothes proved to be unnecessary. ThredUP’s ‘best-in-class interface’ was not enough to create

profitability, either, because the market required more monitoring and enforcement of the

exchange. Their ‘Concierge’ service transformed them in a Hub configuration whose

institutional norms were isomorphic (Scott 1995) with other large online clothing retailers. News

reports show that thredUP is hiring and recently expanded into its fourth distribution center

(BusinessWire 2016); Forbes recently estimated their market value at $400 million (Mac 2015).

Matchmaker Cases

Lowering Transaction Costs for Exchange. Matchmakers combine technology and

sociality in sophisticated ways. Their systems decrease search costs, simplify decisions, and

locate matches that are superior to the ones actors could achieve on their own. In addition,

Matchmaker LEMs deploy platforms alongside institutional arrangements to intermediate

exchanges. Those platforms are tasked with managing the unpredictabilities of consociality,

monitoring the equitability and safety of the exchange, and ensuring that the transaction proceeds

as desired. The multi-barreled approach to trust is crucial, because, although network actors

connect via the matchmaker’s platform, most exchanges are finalized offline. We illustrate a

successful Matchmaker configuration with TaskRabbit and use Skillshare as negative case.

TaskRabbit. Founded in Boston in 2008, TaskRabbit connects vetted skilled freelance

labor (or “taskers”) with actors in their neighborhood seeking services such as cleaning,

shopping, delivery, moving assistance, or home repair. Task posters review tasker profiles and
 25

ratings before accepting quotes for the job posting, which is often completed on the same day.

TaskRabbit facilitates the service search, background-checks its taskers, processes service

purchaser payment, handles payment to the service provider after the work has been completed

satisfactorily, provides customer support, supplies liability insurance, and guarantees

satisfaction. Background checks, customer service desks, insurance and guarantees are

institutional supports and arrangements that legitimate the business (Scott 1995, Suchman 1995).

Although exhibiting a high degree of platform intermediation and deploying institutional

assurances, Matchmakers such as TaskRabbit pair actors in a situation of co-presence. On its

app, the company frames the social aspect of its platforms as “neighbors helping neighbors, re-

imagined for today” and assures potential customers of a “safe” and “reliable” experience

(TaskRabbit 2016). TaskRabbit emphasizes recruiting responsible actors who will earn good

reviews. In communications targeted at professionals, they emphasize their empowerment of

taskers, claiming to be creating “a network of micro-entrepreneurs” (Dinges 2012).

Providing a commercial service with strong social interaction, whose exchange elements

are technologically intermediated, TaskRabbit ameliorates some of the drawbacks of social

exchanges, such as its burdensome norms of reciprocation (Marcoux 2009). With the

Matchmaker type, the LEM’s hybrid commercial-communal and social-technological structure

reaches its most sophisticated realization. The company warns actors against violating the “spirit

of payment” by circumventing the TaskRabbit payment system, as doing so will leave them

“personally liable for any damages or injuries arising from the task” (TaskRabbit 2016). These

are normative enforcement mechanisms combined with its strong platform in order

intermediation to manage the ability of actors to negotiate side deals in person or plan future

transactions outside of the platform’s ability to monetize them. TaskRabbit’s social, institutional,
 26

and technological management of the transactional consequences of sociality demonstrate the

careful balance that successful Matchmakers achieve. Developing and maintaining such a system

requires significant investment. TaskRabbit has raised $38 million in venture financing, employs

60 people, is available in 24 markets, and “is not yet profitable” (Stangel 2017).

Skillshare. Skillshare is a Matchmaker that sought to connect amateur teachers with

students in local markets. Once connected, teachers and students would arrange to meet in-

person for classes or tutoring. Skillshare’s classrooms provided a social experience similar to that

provided by traditional teaching and tutoring. Platform intermediation took over payment and

centralized the financial exchange, but left service delivery in the hands of network actors.

Although the company’s idea was supported by venture capital, it failed in the market.

There are three important reasons explaining Skillshare’s failure. First, the high

consociality of the offering was not matched with corresponding safeguards. Customers faced

with the prospect of amateur, lower-priced teachers recommended by a technology company

were rightly concerned about safety. Second, the logistics required to arrange face-to-face classes

and teaching were difficult and expensive. Finally, Skillshare’s market competitors, such as

Udemy, we effectively replacing in-person classes with distance learning video technology.

Shedding its Matchmaker skin and adopting the form of an Enabler, Skillshare

transitioned to an online-only platform and began successfully delivering online and video

courses. In its first year online, the company attracted 75,000 new students, who provided $1.5

million in compensation to its online teachers (Griffith 2013). Three years later, the company had

40 full-time employees and boasted 3 million enrollments from over 180 countries (Noto 2016).
 27

Hub Cases

Building on Talent and Developing Standards. The Hub is characterized by a uniform

service experience similar to that found in a conventional marketplace. As with retail

consignment, Hubs integrate resources from different actors and serve as a central place to enact

exchanges. Hubs provide network actors with many assurances against risk: they create a

marketplace, lower search costs, offer product guarantees, monitor actors, and ensure that the

exchange transpires as planned. Yet, for some companies, these elements are insufficient for

success. In the final section of our findings, we illustrate the empirical manifestation of the Hub

form with two cases. The first, Quirky, has struggled to be a financially viable company. The

second, Homejoy, shut down after 5 years in business.

Quirky. Founded in 2009, Quirky is a platform that brings crowdsourced inventions to

market. The centralized platform enables inventors to propose and refine their ideas, for a fee.

Then, from an online community of thousands of interested participants, network actors judge

the ideas and offer suggestions. With input from members of the community, the company

chooses the best ideas, manufactures the products, and commercializes the innovations. Platform

intermediation is high, with the flow of innovative ideas moving from the actors to the platform

to the public. Quirky also apportions benefit from sales. Not only does the inventor of the

product receive a commission from Quirky, so too do members of the community who provided

helpful suggestions. Typical for the Hub configuration, Quirky remains in full control of the

exchange process, providing privacy while ensuring quality and a consistent user experience.

The company grew quickly, with over a million network members, $100 million in

revenue and 400 products developed by 2014 (Lohr 2015). It attracted $185 million in capital

and signed development deals with companies such as General Electric (Lohr 2015). According
 28

to Walker (2009), “part of what its customers are buying isn't just a doodad but also the crowd-

pleasing notion of tapping into the creativity of the many: a nonexpert with an interesting

concept that is sharpened to perfection by the input of an engaged, online peanut gallery.”

The financial commitments required by Quirky’s high platform intermediation strategy

caused the company to struggle with production and retail distribution costs (Martin 2015). The

company also failed to properly attract high-quality inventors who were looking for a stable

system on which to develop and profit from their new product ideas. Favoring the tight controls

of low consociality, the company had neglected two important considerations. First, many types

of invention require coordination between several people with different skills. By minimizing

sociality, Quirky limited participants’ abilities to collaborate. Second, social and non-financial

rewards play an important role in motivating high-quality inventions and evaluations.

Anonymizing participation constrained the ability of the system to attract talented inventors.

Attempting to address these concerns, Quirky added increased collaboration functions to

its system. It gradually provided more places for inventors to communicate, publicly and

privately. In addition, the website began featuring personal “meet the community” profiles of

members and activities featuring individual inventors discussing what drives them. However,

these social elements were added too late. The company filed for Chapter 11 bankruptcy in

September, 2015. It subsequently returned in February 2016 with new owners and financing.

Homejoy. Homejoy was formed in 2010 to connect customers with home service

providers, especially house cleaners. With Homejoy, “cleanings were fully bonded, and cleaners

contracting on the platform had to go through a screening process which involved third-party

background checks…. The platform charged a uniform rate of $25 an hour for service” (Huet

2015). Although they were lateral network actors, Homejoy’s cleaners were treated like
 29

employees; the platform charged customers for their services just as if it were any other cleaning

service. With this new labor formula working well, the company grew rapidly. Eventually, it

operated in 31 cities across the United States, Canada, and the United Kingdom.

However, by 2015 the company was teetering on the edge of bankruptcy. Homejoy faced

three major challenges common to the Hub form. The first was quality control. Service provided

by the often unskilled network actors was uneven. The firm tried to standardize the home

cleaning service by training and certifying its house cleaners. However, training actors to provide

a uniform service (e.g., leaving a Homejoy-branded fold on the bed) led to the second challenge:

legal disputes that questioned the ostensibly independent status of its independent contractors. As

Denegri-Knott and Tadajewski (2017, p. 234) explain in the context of another “peer-to-peer”

market, “Only certain practices are rendered legitimate methods for facilitating the co-creation of

value and here the role of the legal system is paramount”. LEMs are new forms of exchange and

are still in the turbulent process of gaining legitimacy and institutional—including regulatory—

support. At a purely pragmatic level, even after training, Homejoy’s work was still plagued with

“run-of-the-mill execution problems” (Farr 2015). The final challenge for Homejoy was a

retention problem resulting from the opportunism of co-presence. “Cleaners who excelled would

sometimes strike independent relationships with clients who wanted to see them again... ” (Farr

2015). By industry standards, Homejoy’s cleaners were underpaid. Working independently

“often resulted in a pay increase, and some cleaners even attracted enough new clients to start

their own small cleaning businesses. Homejoy’s only recourse against this threat, known as

disintermediation, was to stop working with cleaners who attempted to recruit customers” (Farr

2015). When disintermediation occurred, Homejoy lost a service provider as well as a customer.
 30

Homejoy’s quality control, legal, and opportunism challenges sunk the company. It ceased

operations in July 2015.

These eight empirical examples –Homejoy, Quirky, Skillshare, TaskRabbit, thredUP,

Kickstarter, Zimride, and Craigslist—illustrate the diversity of LEMs. They also demonstrate

how the underlying dimension of sociality and platform intermediation work in concert with

institutional attempts to legitimate the company to provide either effective or ineffective

solutions to governance and trust issues. In the next section, we explore the implications of these

findings for marketing theory and managerial practice.

Discussion

Understanding Lateral Exchange Markets

Lateral exchange markets are not limited to the consumption of access, sharing based

exchange, or the amateur-based activities of peers, nor are they characterized by a monadic

approach to exchange. These widespread and influential activities are technologically

intermediated exchanges between the members of a network of buyers and sellers. After

examining a large set of LEMs and analyzing how they function, we develop four LEM types.

The types have two underlying trust-related dimensions: extent of consociality between actors

and intermediation of the platform. We then closely examined twenty cases of variously

successful and unsuccessful LEMs in order to gain additional insight into their general

organizing principles. Our work contributes two sets of novel insights to theory construction.

First, our quadripartite typology reveals limitations in prior research that generalized findings

from just one LEM type, such as access-based (Barhdi and Eckahrdt 2012) or collaborative

consumption (Benoit et al. 2017), to all types. Related to this, our model explains why these

types tend to exhibit particular characteristics. Second, it reveals how platform intermediation
 31

and extent of consociality are applied in discernible patterns across and within LEM types to

create value and solve trust-related problems such as opportunism. In the following sections, we

discuss these contributions and their managerial implications.

Revealing the Different Types of Lateral Exchange Markets

Our findings consolidate, organize, and provide novel conceptual underpinnings for past

research on peer-to-peer marketing, collaborative consumption, and the sharing economy.

Although we avoid the misnomer “sharing economy,” this article informs Belk’s (2014, p. 1597)

observation that many of these contemporary companies rely “on the Internet, and especially

Web 2.0”. Our analysis of processes of sociality management and exchange mediation explains,

in a general sense, how and why these companies rely upon networking technology. Unlike

Belk’s (2014, p. 1596) conception of the sharing economy, in which technology is used to

‘facilitate older forms of sharing’, our conception views the technology platform as an

inextricable element of the LEM phenomenon, one which actuates certain elements of the

exchange and interaction, but does not completely determine them, and is situated within a

complex and dynamic institutional environment.

Our platform focus explains Arsel and Dobscha’s (2011, p. 67) interesting observation

that Freecycle platform users defy rules, tell stories that are squelched by the organization’s

platform, and feel conflicted about its ostensibly non-profit nature. Our model views Freecycle

as a manifestation of the Forum ideal type and explains why we would expect to find minimal

platform intermediation and high consociality in it. Forums are social, even festal, places,

locations where we would expect to see rule breaking and story-telling. These characteristics also

make the Forum one of the most difficult types to manage and monetize.
 32

Similarly, we should not expect to find that all LEMs have the sociality of Muniz and

O’Guinn’s (2001) brand communities. Bardhi and Eckhardt (2012) find a communal ethos

absent from the access-based consumers of Zipcar, a for-profit car-sharing platform. They

attribute the “deterrence” of a communal ethos to the company’s “big brother model” of

“governance” (Bardhi and Eckhardt 2012, p. 888). Our model indicates that Zipcar is a Hub type,

an LEM that deliberately inhibits consociality among actors and instead confers trust through

strong platform intermediation. Although Zipcar’s efforts to foster a brand community are

noteworthy, their failure is relevant because it highlights the incompatibility of a centralized

exchange platform with a highly social and communal experience. Our findings demonstrate

how Bardhi and Eckhardt’s (2012) important conclusions about Zipcar should not be applied

generally to all types of “access-based consumption” or to all varieties of LEMs—only to Hubs.

Similarly, Benoit et al. (2017) use Uber as an exemplar to develop their conceptualization

of “collaborative consumption”. They classify Uber as a “matchmaker”, a platform provider that

“uses sophisticated algorithms” to “match drivers with customers while at the same time

optimizing a number of different, sometimes competing, objectives” (Benoit et al. 2017, 224).

Their classification accords perfectly with our typing of Uber as a Matchmaker. However, they

proceed to suggest that the value for all platforms in all forms of collaborative consumption,

which they link to a wide variety of related access-based, peer, and sharing exchange markets,

lies solely in matchmaking. Our findings contradict their generalization. For example, although it

is true that all LEMs create value by bringing actors together, not all of them must use platforms

with sophisticated algorithms, or perform complex optimization tasks. Craigslist, Freecycle, and

other Forum forms rely on social connection between actors for these coordination and

optimization tasks, while Enabler LEMs like Yerdle and 99Dresses perform them by equipping
 33

actors to sell to one another. In all, our model and its findings extend current thinking about these

types of markets by providing a more comprehensive and a more nuanced classification scheme.

Patterns of Assurance in Trusted Platforms

Our investigation of contemporary LEMs develops Adler’s (2001) contentions about the

effective management of information based companies flowing mainly from a communal form of

governance. It also reveals the importance of technology platforms as well as institutional

arrangements such as third-part verification, liability insurance and money-back guarantees to

the creation of the trust required for this new form of exchange to gain social acceptance. Across

all of our empirical LEM cases, the need to instill and manage trust was strongly evident. For

some LEMs, such as Task Rabbit, the uncertainties of matching task service providers with

buyers necessitated that they expand their business into verifying identities, supplying liability

insurance, guaranteeing satisfaction, providing customer support, and managing the ratings of

both sellers and buyers. For Homejoy, it meant training the people who were going to be

providing the home cleaning services so that the company could offer a more standardized

experience. ThredUP found that depending upon buyer’s abilities to price, photograph, list, and

package their own products was insufficient, and the company took over this aspect of the

transaction for these lateral actors in order to create a more legitimate purchase experience

isomorphic with existing online retail practices. On Craigslist, we see the results of failing to

identify scams, suspicious posts, and potentially dangerous social interactions. This lack of

control is not due to some failing of Craigslist itself but, as our model suggests, an unfortunate

side effect of the type of LEM they represent. To try and manage this unintended consequence,

Craigslist added watchdogs to their forums.

 34

Our findings illustrate how the LEM form inspires different governance mechanisms

which use training, verification, ratings, watchdogs, insurance, and legal mechanisms such as

guarantees and warranties to manage transaction trust. Institutional norms are still in flux

regarding this new form of business, necessitating governance with additional assurances such as

insurance and guarantees. Governance is anchored by the interpersonal confidence conferred by

consociality on one end, and the technological assurances of platform intermediation on the

other. Either type of governance can be managed successfully, and our analysis of a variety of

examples suggests not only that institutional and legal arrangements play supporting roles, but

also that there are many profitable ways to combine them.

For example, successful LEMs with low platform intermediation, such as Craigslist, shift

the responsibility for personal and exchange security to lateral actors. The combination of virtual

and physical co-presence, along with its possibilities for communication and negotiation, allow

transaction actors to smooth out any rough edges in trust and to work out a successful exchange.

Other forms of LEM find market success with a different combination of platform and social

assurance. With an enabler LEM like Kickstarter, a predetermined format for the online

exchange provides a degree of consistency, but also allows actors to improvise and display their

individuality. Lending Club’s fiscal responsibilities and high need for exchange assurance lead it

to provide a platform that handles every element of the exchange, renders personal identities

invisible, and severely limits consociality. Lending Club’s use of software algorithms to assess

lender and borrower worthiness is built into their platform. Those algorithms, along with the

Lending Club brand and platform, serve as the basis for their lenders’ trust. Actors’ trust in

LEM’s technology platforms is often similarly based upon normative belief in the legitimacy of

of their algorithms—or perhaps faith in algorithms in a general sense (O’Neil 2016).

 35

In summary, LEM platforms affect value creation by enabling, directing, and

constraining social and economic interactions. Acting as an intermediary, the platform provider

offers two potential benefits: creating the marketplace and lowering various transaction costs.

Acting as a social space, the platform offers the opportunity to communication, personalize, and

negotiate. When the need for trust is especially high (as with a personal meeting or a significant

financial transaction), it is generally met with a higher level of platform intermediation (as with

thredUP), with higher levels of sociality (as with Quirky), or with additional institutional

attempts to build legitimacy (as with Taskrabbit). In multiple cases, including Craigslist and

Skillshare, we observe how sociality and co-presence introduce a degree of unpredictability that

can have positive as well as negative outcomes (e.g., the marriages of Lyft and the murders of

Craigslist). The general principles of the quadripartite model of LEMs contribute a novel

understanding about how technology successfully combines with exchange and social behaviors

in our contemporary marketing landscape. It demonstrates how consociality interacts with and

can be replaced or titrated by various forms of platform intermediation.

Managerial Implications

Managing Lateral Exchange Markets. Although the so-called sharing economy has

grown rapidly and been the beneficiary of significant public attention over the past few years, its

relative newness means that we still know very little about how it actually operates. Marketing

managers working in these disruptive new fields must make important decisions about their

businesses without the tried-and-true guidelines bestowed to managers in established industries.

As well, many existing companies are entering LEMs as complementary businesses. For

example, sustainability-minded outdoor clothing company Patagonia entered the LEM field with

“the Common Threads Partnership”, an Enabler that connects customers wishing to exchange
 36

their secondhand Patagonia clothing. Similar businesses might complement existing operations

in a range of other industries, from musical instruments to art to electronics. As one of the first

comprehensive investigations of LEMs, our article offers a comparative understanding of the

structure and general organizing principles of these new forms of business that can be useful

both to managers of pure play peer-based businesses as well as to established players extending

their operations into these new forms. In this section, we explore the applications of our research

findings by developing their strategic implications.

Awareness of LEM type is the first step to their effective management. In order to

effectively hone and market its value proposition, a marketer must understand the LEM type his

company seeks to operate within. Forums, Matchmakers, Enablers, and Hubs each have

particular forms of value creation that should focus managers’ business investment decisions and

resource deployment. In addition, these types each face particular transaction risks that will

require managers to balance network actors’ trust in the transaction with the risks that actors,

once connected, will no longer need them. We offer guidance as we consider the strategic

situation faced by the management of each of the four LEM types in turn.

Managing Forums. Forums reduce search costs and provide their greatest customer value

by facilitating connections. Therefore, Forums need to invest in technologies and platforms that

attract significant numbers of people to the network and then empower them to communicate

with one another. Although it might be tempting to try to usurp control of between-actor

communications, or to filter them through the company, our model suggests that Forums are

most effective when they facilitate a free flow of messages. The next major task of a Forum –to

help manage actors’ transaction risks—flows directly from this high degree of freedom. To

manage this risk, Forums should educate network actors about the unregulated nature of the
 37

market, and inform them in no uncertain terms to be cautious about their exchange. Layers of

volunteer moderators, reputation systems, and third party verification may be helpful additions to

the system that can verify actors and inspire trust. However, managers in Forum companies

would be wise to realize that safety concerns are likely to be a fact of life, and to adopt

appropriate legal and fiscal safeguards, such as disclaimers and liability insurance.

Managing Enablers. Enablers provide value by lowering search costs and making it

easier for actors to decide to transact. They should focus their investments and resources on

equipping actors with tools sufficient to allow them to provide outstanding value to other actors.

Enablers must find and build opportunities for network actors to engage in some of the value

creating practices described by Schau, Muniz, and Arnould (2009), which include customizing,

badging, and milestoning. Tools for many of these practices can be programmed into the

software interface of the platform. The platform would then simplify, standardize, and encourage

actors to use these value-creating tools and practices. Enablers can minimize transaction risks by

placing actors within a networking platform that allows them the ability to broadcast a personal

message that inspires interest and trust in other actors. However, the company is responsible for

maintaining a minimally social environment in which actors can relate to one anothers’ market

offerings, but enact their transactions with a bare minimum, if any, of direct communication.

Managing Matchmakers. Matchmakers lower monitoring costs, simplify search and

facilitate better decision-making for actors. They provide their greatest source of value by

appropriately pairing network actors. Matchmakers’ strategies must both embrace and manage

the risks that accompany high consociality. First, a selection of third-party screening, identity

verification, and reputation systems should be deployed and offered to network actors to mitigate

safety concerns and help reduce the hazards that accompany the benefits of physical co-presence.
 38

In order to assure a superior service, Matchmakers must also combine their high platform

intermediation with a selection of actor training and certification, quality verification, and

satisfaction guarantees. Furthermore, Matchmakers should lean into consociality and its tendency

to lead to social connection. Many companies assure actors that they will not be paired again

with other actors they have given a low rating. Forward-thinking companies might offer the

opposite: the chance to be paired again with a familiar and liked service provider. In order to

combat the danger that, once connected, network actors will engage in additional transactions

outside the network, Matchmakers should combine the enticements of familiar network actors, a

cutting-edge platform, high quality standards, and important exchange safeguards with moral

suasion and communal norms that discourage out-of-network exchange. Fostering the brand

community engagement and impression management related practices of evangelizing,

justifying, milestoning, badging, and documenting (Schau, Muniz, and Arnould 2009) may be

effective ways to achieve this. These practices can also be programmed into the software

interface of the company’s platform.

Managing Hubs. Hubs lower the costs associated with search, decision-making,

monitoring, and exchange enforcement. Their core value proposition lies in the centralized

exchanges they generate through their direct service interaction with network actors. Hubs must

manage in an LEM business environment devoid of the attractive, humanizing, and trust

inspiring benefits of co-presence. Depending upon the industry, these elements may be more or

less important sources of value for actors. Where they are less important, as they seem to be in

more quantitative, interchangeable markets such as finance, Hubs should invest strongly in their

own platforms, its related systems and the promotion of the corporate brand. With one network

actor almost interchangeable from the vantage point of another, investing in the cutting-edge
 39

abilities of the platform, its capacity to assess or mitigate risk, its ease of use and strong technical

performance is the most sensible decision. Network actors will be particularly attracted to the

Hub’s platform. It is the platform itself that actors will trust, and the Hub is wise to invest in its

technology and branding. In some industries, the optimal performance of network actors may

require collaboration or the acknowledgment of rare talent. In those cases, and only when

necessary, the Hub should offer a minimal ability to personalize and communicate between

network actors. When those abilities are provided, corresponding increases in platform

intermediation should carefully monitor between-actor interaction in order to ensure that value-

detracting social activities remain a negligible part of the Hub experience.

Conclusion

Emerging from a business format that extols “commons-based peer production” but does

so within the “particular structural and ideological scaffolding” of Silicon Valley (Turner 2009,

p. 76), lateral exchange markets are sites that link to a range of ideologies. The sharing economy

literature (Belk 2014) connects peer exchange with utopian themes, casting its market forms in a

generally positive, sometimes idyllic, light (Arnould and Rose 2016). Arnould and Rose (2016)

reject the use of the term “sharing economy” in academia, given how promotionally freighted the

term has become. We agree, and offer our alternative: lateral exchange markets—a concept that

at its core blends notions of the social and economic, but also recognizes the complex

institutional, legal, material and representational worlds in which these markets are embedded,

worlds whose practices will benefit from future research.

The legal, ethical and moral problems of LEMs are challenges well worth exploring

further. They are some of the most important and difficult issues that marketing practitioners

working in a post-trust age currently face. Uber’s scandals (Newcomer 2017), and Homejoy’s
 40

problems are par for the course for LEMs, whose new forms are transforming the world of

business but must build legitimacy and trust. Although our research focused on the threat of

opportunism from network actors who could meet and then transact outside the platform’s ability

to monetize the exchange, our findings reveal many opportunities for companies to use the

power of their platform to be opportunistic. For example, Uber’s ostensibly legitimate heuristics

allegedly cheated its drivers of millions of dollars through system programming that rounded

fees to the nearest dollar in the company’s favor (Newcomer 2017).

Although we maintain an objective and supportive stance towards these still-emerging

forms of exchange, we do not take lightly their power, their problems, and the intelligent legal

and scholarly critiques levied against them. We agree with Kreiss et al. (2011, p. 256) that,

hidden behind LEMs’ surface level of convenience, equity, and “peers” who “share equally in

the spoils”, is a technocracy that fails to “develop institutional mechanisms” for “values such as

inclusion”. This article can be read as a guide for management practice, as a sociological

exploration, and also as a critique. We see it as all of these things, and also as a contribution to

our greater understanding of the transformational consequences of the ongoing intermingling of

technologies, markets, institutions, and socialities.

 41

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TABLE 1

LEM Theoretical Contribution in Relation to the Literature

Includes
Conceptualizes Extent of
Includes Excludes professional
Differences focus on
Core Concept Conceptual Definition ownership sharing good and
within Broader technology
transfer and gifting service
Phenomenon platforms
providers
Market formed through an
intermediating technology
Lateral
platform that facilitates
Exchange
exchange activities among Yes High Yes Yes Yes
Market (LEM;
a network of equivalently-
current study)
positioned economic
actors
Sharing
People coordinating
Economy
acquisition and Excludes
/Collaborative
distribution of a resource No Partial Yes sharing No
Consumption
for fee or other type of only
(e.g., Belk
compensation
2014)
Market-based relation
Collaborative
between a platform, peer
Consumption
service provider and No Partial No Yes No
(e.g., Benoit et
customer in which no
al. 2017)
ownership transfer occurs
Access-based
Consumption Consumption activity in
(e.g., Barhdi which no transfer of No None No No No
and Eckhardt ownership occurs
2012)

Commercial Marketer-managed
Sharing arrangements providing
Systems (e.g., customers with product No None No No No
Lamberton and benefits without
Rose 2012) ownership
 48

TABLE 2

Reduced Set of Twenty Cases Selected for Ideal Type Interpretive Data Analysis
Name Description and Website Industry Scope Founded Type
1000 Marketplace connecting tool owners and Merchandise U.S. 2013 Forum
Tools* renters. Closed in 2014.
99dresses* Platform for swapping women's fashion using Apparel U.S. and 2012 Enabler
virtual currency. Closed in 2014. Australia
Airbnb Online community marketplace for people to Hospitality Global 2008 Matchmaker
list, discover, and book accommodations
around the world. http://airbnb.com
Carpool Matches commuters or other travelers Transportation Global 2000 Forum
World according to their transportation needs.
https://www.carpoolworld.com
Craigslist Classified advertisements website Classified Global 1995 Forum
http://www.craigslist.org advertising
DogVacay Connecting dog owners with caregivers. Services & labor U.S. 2012 Matchmaker
https://dogvacay.com
eBay Online marketplace for buyers and sellers. General Global 1995 Enabler
http://ebay.com commerce
Freecycle Grassroots nonprofit movement of people Merchandise U.S. 2003 Forum
giving (and getting) stuff for free in their own
towns. https://www.freecycle.org
Homejoy* Online platform to match homeowners with a Services & labor U.S. 2010 Hub
screened, background-checked, and certified
professional cleaner. Closed in 2015.
Kickstarter Crowdfunding platform for creative projects. Funding Global 2009 Enabler
https://www.kickstarter.com/
Lending Financial community that brings together Funding U.S. 2007 Hub
Club creditworthy borrowers and savvy investors so
that both can benefit. http://lendingclub.com
Poshmark Mobile and online marketplace for buying and Apparel U.S. 2011 Enabler
selling women's fashion. https://poshmark.com
Quirky Community of inventors developing unique Merchandise U.S. 2009 Hub
products. http://www.quirky.com
Skillshare Global community to learn real-world skills Education Global 2012 Enabler
from peers. https://www.skillshare.com
Snapgoods* Online platform to rent and borrow gear from Merchandise U.S. 2010 Matchmaker
others in their neighborhood. Closed in 2013.
TaskRabbit Outsource household errands and skilled tasks. Services & labor Global 2008 Matchmaker
http://www.taskrabbit.com
ThredUp Online shop to buy and sell like-new women's Apparel U.S. 2009 Hub
and kids' clothing. http://www.thredup.com
Uber Connects riders with safe, reliable, convenient Transportation Global 2009 Matchmaker
transportation providers. http://www.uber.com
Yerdle People-powered store with the best prices on Merchandise U.S. 2012 Enabler
earth. https://yerdle.com/
Zimride Ride-sharing platform. http://zimride.com Transportation U.S. 2007 Forum
*Platform failures: no longer operational as of October 2016.
 49

FIGURE 1

Lateral Exchange Market Types

Forums Matchmakers
Connect actors Pair actors
High

Service flows directly between actors Platform provider mediates service flow between actors
Consociality

(actor çè actor) (actor ç platform è actor)

Enablers Hubs
Equip actors Centralize exchange
Low

Service flows directly between platform and actors

Service flows from intermediary to providers to beneficiaries (actor çè platform çè actor)
(platform èactor è actor)

Low Platform Intermediation High

 50

FIGURE 2

Lateral Exchange Market Companies Categorized as Types

 Indicates modifications to platform configurations

* Indicates that the platform is no longer operational
 51

Web Appendix

DIRECTORY OF LATERAL EXCHANGE MARKETS EXAMINED

1000 Tools* Crowdcube Hey Neighbor! † RedBeacon The Outnet
99dresses* Crowdflower Hire A Boston RelayRides The Sharehood
Wingwoman (now Turo)†
9Flats CyclOcity HireThings Rentback Thredup*
Airbnb* Desksnearme Homejoy* Rent The Tickengo
Runway
Airrun Desksurfing Itex Rent-a-toy Timebanks
Airtasker Deskwanted Jayride Rentalic Toolspinner
Airtime Dig N’Swap Kickstarter* Rentoid Toolzdo
Amazon Dim Dom Kinderado RentStuff Tourboarding
Marketplace† (formerly
Tauschteddy)
Amovens Dodge Dart Landshare Roomorama Toyswap
Registry
AnyHire Dogvacay* Lending Club* Rover Tradeschool
Art.sy Drivemycar Letsystems Sass TurningArt
Rentals
Artsicle DuckSeat Liftshare Servicevines Uber*
Autolibre Eatwithme LiquidSpace† Share Some Udemy†
Sugar
Autonetzer Ebay* Livemocha Sharemystorage Urbangardenshare
Autoshare Ecomodo Love Me and Shopittome Vayable
Leave Me
Avego EduFire Lyft† Sidecar Velib
B-Cycle Etsy† Myngle Sidetour Ven
BabyPlays Exchango Mytaskangel Skillshare* Weeels
Bag Borrow or Expert Bids Nachbarschafts Snapgoods* Wello
Steal auto
Barclays Cycle Facebook Nanny in the SnappCar Weteachme
Hire Groups† Clouds
Bartercard Floqq Neigh*borrow Social Bicycles† Whipcar
Bed and Fed Freally Neighborgoods Solar Century WhizzCar
Bees Office Freecycle* Newworkcity Solar City Wok+Wine
Bixi Frents Niceride Spaceout Yerdle*
 52

Bookmooch Friends With Nuride Speelotheken Yardshare

Things
Brinquedoteca Garage Sale One Fine Stay Spinlister Zaarly
Trail (rebranded as
Liquid) †
Brooklyn Skill Gazelle Open Shed Startsomegood Zazcar
Share
Buzzcar Getable Oodle† Stattauto Ziilch
Call-A-Bike Getaround Opendesks Storpod Zilok
Cambiocar GetMaid Optini Streetbank Zimride*
CampusBookR Gidsy Ourgoods Studiomates Zipcar†
entals†
Care.com† Giftflow Paperbackswap Swap.com† Zookal
Carpool Gigwalk Park on my Swapsity Zopa
World* Drive
CarSharing Globetrooper Parkatmyhouse Tamyca
Catarse Glovico Parkcirca TaskRabbit*
Chegg Gobble Poshmark* Taxi2
CitizenRe GoCarShare Pozible Taxistop
City Car Club GoFundMe† PretaSol Techshop
Coloft Grubwithus Prosper The Clothing
Exchange
Craigslist* Gumtree Quirky* The Liquidity
Network
* Platform selected for multiple case analysis (20) | †Additional platforms author used for
participant observation