“Actual” and Perceptual Effects of Category Spanning

Abstract

Literature to date has demonstrated that producers and products spanning multiple categories have inferior market performance. However, two related but distinct explanations exist as to the source of such a discount. One explanation suggests that “actual” skills are degraded when producers attempt to engage across diverse categories. Another explanation involves perceptual fit to category representations held by an audience as the cause. These two explanations tend to be confounded in archival studies because external observers, responsible for the evaluation of market performance, are often aware of both the identity of producers and the underlying characteristics of their products. This leaves researchers unable to empirically separate effects. We present an analysis conducted in a setting in which it was possible to distinguish the two mechanisms: critics’ ratings of the same wines through “blind” and “nonblind” tastings. The findings indicate that after controlling for the value of ratings assigned blindly, the wines made by wineries spanning styles continue to receive lower ratings in the nonblind situation.