Platform governance and the rural–urban divide: Sellers' responses to design change

Abstract Research Summary Platform companies use design changes to govern their participants. The success of a design change depends on participants' responses, which are influenced by their local environments. Our study focuses on an important aspect of the local environment—rural versus urban. Using data from a leading e‐commerce platform, we find that relative to urban sellers, rural sellers were particularly poor at adjusting to a major design change, resulting in a persistent performance gap. We attribute these misaligned responses to rural sellers' lack of local access to rich information. This study shows that sellers' local heterogeneity generates equivocal responses and carries unintended consequences for platform governance. It also enriches our understanding of digital inequality and algorithmic design by highlighting the importance of the “offline interface.” Managerial Summary Digital platforms frequently change their design rules (e.g., ranking algorithms) to guide the behavior of participants. However, participants are inherently heterogeneous, and their abilities to understand and follow a design change also vary across populations. This study examines a major design change on a leading e‐commerce platform. We find that, compared to urban sellers, rural sellers developed responses that detracted from the platform's design goals and resulted in lower sales. This study highlights the need for digital platforms to understand how participants' offline environments affect their online behavior. This study also shapes the conversation on digital inequality: despite being connected online, entrepreneurs in traditionally disadvantaged regions may still suffer from a lack of accessible local information channels.