Market Formation: Examining the Coordination of Heterogeneous Contributions

While extant literature recognizes the central role of collective action in market formation, it undertheorizes the existence of collective action dilemmas and their impact on successful market emergence. We redress this gap by examining the central mechanisms governing the existence and resolution of collective action dilemmas in market formation. We use a computational model that centers on actors’ collective development of a market infrastructure to explore the impact of different degrees of collaboration on market formation. In particular, consistent with market settings where actors tend to perform entirely distinct roles, we allow actors’ resource contributions to be imperfectly substitutable. We find that while heterogeneity in growth strategies strongly reduces market emergence thresholds under perfect substitution, this effect is strongly suppressed under imperfect substitutability. Most important, our analyses point to a market emergence conundrum: market success depends mostly on collaboration precisely where the foundation for its existence is lowest. We develop a set of propositions and a grounded typology of idealtypical instances of market formation. We discuss the implications of our findings for connecting collective action and market formation research.