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When reinforcing processes generate an outcome-quality dip

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Denrell, Jerker and Liu, Chengwei (2021) When reinforcing processes generate an outcome-quality dip. Organization Science, 32 (4). pp. 1079-1099. doi:10.1287/orsc.2020.1414

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Official URL: https://doi.org/10.1287/orsc.2020.1414

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Abstract

When does market success indicate superior merit? We show that when consumer choices between products with equal prices depend on quality but also on past popularity, more popular products are not necessarily of higher quality. Rather, a medium level of popularity may be associated with lower quality than lower levels of popularity. Using a formal model, we show that this kind of nonmonotonic association occurs when reinforcing processes are strong. More generally, a dip can occur when outcomes depend on both quality and resources and the latter are allocated bimodally, with some being given a lot of resources and most receiving little. Empirically, we illustrate that such a dip occurs in the association between movie theater sales and ratings. The presence of a dip in the outcome-quality association complicates learning from market outcomes and evaluation of individuals and new ventures, challenges the legitimacy of stratification systems, and creates opportunities for sophisticated evaluators who understand the dip.

Item Type: Journal Article
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Divisions: Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Organizational behavior, Risk management, Motion picture industry -- Economic aspects, Evolutionary economics, Economics -- Decision making
Journal or Publication Title: Organization Science
Publisher: Institute for Operations Research and the Management Sciences (I N F O R M S)
ISSN: 1047-7039
Official Date: July 2021
Dates:
DateEvent
July 2021Published
1 February 2021Available
19 June 2020Accepted
Volume: 32
Number: 4
Page Range: pp. 1079-1099
DOI: 10.1287/orsc.2020.1414
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
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