Cross-Market Entry of Gig Platforms Under Shared Labor

Diversification into related businesses that draw on a platform's existing supply sources has become common in the gig economy. For instance, a ride-hailing platform may enter on-demand delivery by leveraging the same pool of gig drivers. While cross-market entry may create economies of scope by leveraging shared labor and platform infrastructure, it can also intensify wage and price competition across markets, leaving its long-run economic and welfare implications uncertain. We develop a game-theoretic model with two competing platforms and two service markets that share labor but have independent consumer demand. Each platform decides whether to enter its rival's primary market by reallocating labor. The analysis yields three insights. First, higher cross-wage sensitivity intensifies wage competition and raises the cost of expanding into a rival's market, reducing entry incentives; this effect is stronger when service substitutability is higher in the target market and weaker when service substitutability is higher in the home market. Second, as cross-wage sensitivity increases, the entry strategy shifts from being jointly beneficial to a Prisoner's Dilemma and eventually loses stability, while the no-entry strategy becomes the risk-dominant outcome. Third, cross-market entry improves labor welfare and overall welfare, but its effects on platform profits and consumer surplus depend on service substitutability. A win-win-win outcome for platforms, consumers, and workers arises when labor competition is mild and service substitutability is moderate. Extensions that incorporate demand-side spillovers, entry costs, incumbency loyalty, and asymmetric market conditions establish the robustness of these insights. Managerially, the results suggest that platforms should rely less on aggressive subsidy races and more on operational levers that shape consumer and worker responses to competition, such as workforce retention and service differentiation.