New Governance and Digital Platform Companies

Abstract

Based on a new governance theory as regulatory governance, this article analyzes how a new economy creates new transaction costs at the local level due to the lack of legal coordination based on diversity and competition. The literature focuses on how new platform technologies have decreased existing transaction costs (i.e., online platforms). Surrounded by uncertainties in today's diverse, complex, competitive, and a fast market environment, the lack of legal coordination has created new transaction costs for digital platform companies. There is limited research on new digital platform company experiences with high transaction costs. There is also limited information on how to overcome these costs, especially due to the lack of legal coordination. This article documents ways to understand how transaction costs are revealed through new technologies. It compares diverse regulatory impacts of the new economy on different localities, including San Francisco and Istanbul. Analyzing Uber as the case company, as well as its relationship with other stakeholders, this article adopts the governance model of regulation to identify the constitutive dynamics of the regulatory challenges. It reveals that local and global e-hail firms in the same country acquired different acceptance and responses in the local market. Thus, the level of transaction costs varied. Local communication based on diversity and competition was derived from the vested interests of lobbying powers, which led to the rising transaction costs. Comparing the local governance in two cities reveals the extent to which transaction costs affect the raison d'etre of companies to perform activities.