Asymmetric Reputation Spillover from Agencies on Digital Platforms

Abstract

Digital markets proliferated in recent years, overcoming many market inefficiencies by facilitating direct interactions between consumers and producers. Thanks to this disintermediation, consumers nowadays have access to a vast number of alternatives, while producers can efficiently reach huge markets. However, the success of digital markets created a concomitant challenge: producer differentiation. In crowded markets, agencies (e.g., publishing companies in books, freelance agencies in online labor markets, independent labels in music) can differentiate producers by signaling product quality. But how do agencies' reputations affect product success for producers? Can some agencies do more harm than good? To investigate these research questions, we theorize how variation in producer and agency reputation lead to asymmetric and heterogeneous effects, including 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. Analyses of more than one million observations from two digital markets ---MusicShare (a music distribution platform) and Amazon (in the book department)--- provide empirical support to these theory-driven arguments. These findings have design implications for markets, and they contribute to our understanding of how agencies, depending on producer reputation, can either benefit or hurt product success.