Cannibalization and Option Value Effects of Secondary Markets: Evidence from the US Concert Industry

Strategic Management Journal, 2015, 36(11):1599-1614

16 Pages Posted: 26 Nov 2013 Last revised: 3 Oct 2015

Victor Manuel Bennett

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Robert Seamans

New York University (NYU) - Leonard N. Stern School of Business

Feng Zhu

Harvard University - Harvard Business School

Date Written: April 1, 2014

Abstract

We examine how reducing search frictions in secondary markets affects the value appropriated by firms in primary markets. We characterize two effects on primary market firms caused by intermediaries entering secondary markets: the ‘cannibalization’ and ‘option value’ effects. Separation between primary and secondary markets can drive which of the two effects dominates. Firms selling valuable and scarce products are more likely to have separate primary and secondary markets, and will therefore appropriate more value when secondary markets thicken. Firms selling products which are not valuable and scarce will be hurt. Further, we hypothesize that firms have incentives to engineer scarcity by limiting supply when secondary markets thicken to separate primary and secondary markets. We find support for these hypotheses in the U.S. concert ticket industry.

Keywords: Secondary Markets, Prices, Search Intermediaries, Value Appropriation, Concert Industry

Suggested Citation

Bennett, Victor Manuel and Seamans, Robert and Zhu, Feng, Cannibalization and Option Value Effects of Secondary Markets: Evidence from the US Concert Industry (April 1, 2014). Strategic Management Journal, 2015, 36(11):1599-1614. Available at SSRN: https://ssrn.com/abstract=2359803 or http://dx.doi.org/10.2139/ssrn.2359803

Victor Manuel Bennett (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

HOME PAGE: http://sites.duke.edu/bennett/

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Robert Seamans

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

Feng Zhu

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 431
Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=14938

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