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Cannibalization and option value effects of secondary markets: Evidence from the US concert industry
Author(s) -
Bennett Victor M.,
Seamans Robert,
Zhu Feng
Publication year - 2015
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2299
Subject(s) - cannibalization , secondary market , primary market , incentive , scarcity , value (mathematics) , business , economics , intermediary , limiting , industrial organization , microeconomics , marketing , finance , mechanical engineering , paleontology , horse , machine learning , stock exchange , stock market , computer science , engineering , biology
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 . Copyright © 2014 John Wiley & Sons, Ltd.