Podolny 1993

From OBTnotes

Joel Podolny. 1993. A status-based model of competition. American Journal of Sociology, 98: 829-872.

theory

Status is a loosely linked indicator of quality that is dependent on network position and structure. High status grants lower cost and higher demand for products creating a Matthew effect situation that is not realized. Because status is an ordinal property, high status firms are unable to maintain their advantage outside their high-end niche.

evidence

Investment banks underwrite debt issues with public data on profit margin and status of firms involved. High status firms are able to exercise their lower costs by undercutting the competition on the deals they choose to be involved in. The data was consistent by showing that high status firms had a lower gross spread on deals.

tension

High status firms are argued to have lower profits per deal while maintaining a more selective portfolio of deals. This would presumably leave room for a higher profit / less selective / higher volume strategy for lower-status firms, but the author says that volume is also a signal of quality.