Asymmetric Reputation Spillover from Agencies on Digital Platforms
36 Pages Posted: 25 Oct 2019
Date Written: October 17, 2019
Digital platforms have grown rapidly, overcoming many market inefficiencies by facilitating direct interactions between consumers and producers, eliminating brokers, agents, and distributors. Consumers now have a vast selection and producers can now efficiently reach huge markets. But the success of digital platforms created a concomitant challenge: differentiation. In crowded markets, agencies (e.g., publishing companies in books, freelance agencies in online labor markets, independent labels in music) can help differentiate by signaling product quality. But, how do agencies affect product success for producers? Can some agencies do more harm than good? To investigate, we combine producer and agency effects into a system of inequalities. These inequalities suggest that:
(1) more reputable agencies have stronger positive effects on less reputable producers than they have on more reputable producers, and
(2) less reputable agencies hurt more reputable producers more than they hurt less reputable producers.
Analysis of more than one million observations from two digital platforms—MusicShare (a music distribution platform) and Amazon (in the book department)—provides empirical support to these theory-driven arguments. These findings contribute to our understanding of how agencies, depending on producer reputation, can either benefit or hurt product success on digital platforms.
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