Essays on the Consequences of Market Democratization for Organizations

Abstract

My dissertation investigates how organizations’ boundary spanning decisions are impacted by the democratization of market mediation, which is defined as a shift in the balance of power from professional intermediaries to laypeople in the market and is often induced by crowd-based technologies and institutional changes. The first study examines how democratization affects boundary spanning in creative production through a quasi-experiment in the Billboard charts that shifted the power of influence from specialized intermediaries to lay consumers. I find that after genre radio stations’ power to define market hits is diluted by average consumers, producers are more likely to introduce offerings that traverse market boundaries to appeal to a broader audience, as is captured by a measure of crossover appeal based on the objective features of song recordings. Meanwhile, the democratization effect varies by organization and is weaker for specialists and those with moderate experience. These findings suggest that intermediaries who are specialized in a market may be more protective of the market’s boundaries than lay consumers due to their greater knowledge and larger stakes in the clarified boundaries. As such, the major impediment to boundary spanning may be intermediaries, not consumers.

The second study investigates how professional intermediaries, such as venture capital (VC) firms, change their boundary decisions following democratization events, such as the legalization of equity crowdfunding. VCs may be attracted to the novel opportunities identified by crowdfunding investors, and thus diversify their investments. VCs may also seek to differentiate from the crowd by positioning as dedicated experts, and thus become more specialized in their investments. I test these ideas by leveraging the legalization of equity-based crowdfunding in more than twenty states in the US during 2009-2017. I find that VCs make more specialized investments after the crowdfunding policy shocks in their home states, but the effect is attenuated when VCs and crowdfunding investors share similar investment focus. Mechanism tests indicate that specialization is driven by a crowd-out effect, whereas diversification is explained by a lead-in effect. Taken together, my dissertation documents the causal effects of the increasing influence of the crowd on organizations’ strategic decisions.