Cannibalization and option value effects of secondary markets: Evidence from the US concert industry

Victor M. Bennett, Robert Seamans, Feng Zhu

    Research output: Contribution to journalArticle

    Abstract

    We examine how reducing search frictions in secondary markets affects the value appropriated by firms in primary markets. We characterize two effects on primary-market firms caused by intermediaries entering secondary markets: the "cannibalization" and "option value" effects. Separation between primary and secondary markets can drive which of the two effects dominates. Firms selling valuable and scarce products are more likely to have separate primary and secondary markets, and will therefore appropriate more value when secondary markets thicken. Firms selling products that are not valuable and scarce will be hurt. Further, we hypothesize that firms have incentives to engineer scarcity by limiting supply when secondary markets thicken to separate primary and secondary markets. We find support for these hypotheses in the U.S. concert ticket industry.

    Original languageEnglish (US)
    Pages (from-to)1599-1614
    Number of pages16
    JournalStrategic Management Journal
    Volume36
    Issue number11
    DOIs
    StatePublished - Nov 1 2015

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    Keywords

    • Craigslist
    • cannibalization effect
    • concert industry
    • option value effect
    • secondary markets

    ASJC Scopus subject areas

    • Business and International Management
    • Strategy and Management

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