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  • November 2015
  • Article
  • Strategic Management Journal

Cannibalization and Option Value Effects of Secondary Markets: Evidence from the U.S. Concert Industry

By: Victor Manuel Bennett, Robert Seamans and Feng Zhu
  • Format:Print
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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.

Keywords

Cannibalization Effect; Option Value Effect; Secondary Markets; Concert Industry; Craigslist; Competition; Distribution Channels; Entertainment and Recreation Industry

Citation

Bennett, Victor Manuel, Robert Seamans, and Feng Zhu. "Cannibalization and Option Value Effects of Secondary Markets: Evidence from the U.S. Concert Industry." Strategic Management Journal 36, no. 11 (November 2015): 1599–1614.
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About The Author

Feng Zhu

Technology and Operations Management
→More Publications

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  • Driving Efficiency and Sustainability at P&G China By: Feng Zhu, Philip Kuai and Billy Chan
  • How to Avoid the Agility Trap By: Jianwen Liao and Feng Zhu
  • Cheerful Music By: Shunyuan Zhang, Feng Zhu and Nancy Hua Dai
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