The paradox of digital platform launch: A study of incumbent firms in China

Digital platforms are widely understood to create value through network externalities. However, the change from traditional pipeline models to platform-based operations presents substantial organizational challenges. This study investigate how firm status—defined as a firm’s relative position within interorganizational hierarchies—interacts with platform type to influence post-launch performance. Using panel data from Fortune China 500 firms, we find that high-status firms tend to underperform relative to low-status firms after launching digital platforms. Although high-status firms initially benefit from reputational advantages that attracts early participants, the openness and scalability required to drive network externalities may diminish the exclusivity and control on which their status depends. This performance gap is especially pronounced in B2C platforms, where network externalities are stronger, showing that status advantages can paradoxically constrain firm performance. Our findings highlight the inherent tension between pipeline and platform models and underscore the need for status-sensitive strategies in post-launch digital platform. We address the challenge of measuring firm status by using analyst coverage residuals, isolating firm status effects while controlling for performance-related confounding factors. Our study advances the understanding of social contingencies in digital platform launches and provides a robust empirical approach to capturing status-based organizational constraints among incumbent firms.