An Ecology of Market Categories

Abstract

This paper proposes that social categorization is driven by an ecological dynamic that operates in two planes: feature space and label space. It develops a theoretical model that links positions in the two spaces. The first part of the theory predicts that an actor’s proximity in feature space to a labeled cluster increases its propensity to adopt the label. The second part predicts that the structure of label space affects this relationship: featurespace positions are more weakly related to labeling for lenient labels. An empirical analysis of software producers, based on their positions in a technical feature space (derived from portfolios of patents) and a space of market labels, supports these predictions. The results imply that one producer’s changed labeling can change the sets of feature values associated with a label, which then affects other producers in the domain. This coupled ecological dynamic is found even in a loosely governed system of self-categorization. Findings suggest that constraining categories become more constraining, while lenient categories become more lenient. When people judge whether an olive is a fruit or whether Pluto is a planet, their assessments do not depend on what the fruits and celestial bodies have to say about the matter. The situation differs sharply for categorization of humans and corporate actors. These kinds of agents can, and often do, dispute categorical assignments. Re-classification of one object can affect not only how it gets perceived but also the meaning of the category. We are struck by the possibility that this latter effect produces an ecological dynamic for social categorization. Classification of one entity, say a cultural product, affects the classification of others, potentially generating cascades of changes. This ecological dynamic operates in two planes: one involves feature values and the other involves profiles of label assignments. The two planes are connected through categorization when agents label objects. Sometimes labels are linked to feature values that are common to a set of objects. This is the first step to the label becoming infused with social meaning.1 The association between labels and feature values is straightforward in a static world. But social actors, unlike olives and other natural kinds, can change their characteristics. Moves in feature space by members of a category can make atypical Date: July 24, 2012; revised December 7, 2012. We appreciate the extremely helpful suggestions of Greta Hsu, Balazs Kovacs, Gael Le Mens, and Laszlo Polos. This study was supported by the Chicago-Booth Graduate School of Business, the Stanford Graduate School of Business, and the John Osterweis and Barbara Ravizzi Faculty Fellowship at the Stanford GSB. 1In our construction a feature is a dimension such as the form of authority in an organization. Positions in feature space are constructed from values of features, e.g., tradition, rational-legal, or charismatic forms of authority.