The presentation discuss status, hierarchies, and relationship between status and quality based on two research papers i.e., Podolny et. al (1993) and Sauder et. al (2012).

1. Session 8
Status, Celebrity, and Reputation of
Firms
Podolny et. al (1993), Sauder et. al (2012)
Presenter: Muhammad Nauman Shahid
Department of Information Systems and Analytics
School of Computing

2. A STATUS-BASED MODEL OF
MARKET COMPETITION
Podolny et al. (1993)
“Ask in order to understand, and do not ask in order to find fault”. [Caliph Ali R.A.]

3. Outline
• What is Status?
• Conceptualizations of status in sociology and
organizational literature
• Status, signals, and significance to market
• Status and quality
• Matthew effect
• Questions
• Conclusion

4. Introduction: What is Status?
• In this paper, Podolny (1993) explains:
• How status affects marketplace competition?
• Influences everything for example the price a firm
can charge for its goods and services, and to who it
can and cannot accept as a partner.
• What is status?
• Sociology literature defines it as a type of inequality
having two-folds:
• Relationship between social groups (Ridgeway, 1991;
Ridgeway & Erickson, 2000; Weber, 1978)
• Hierarchical relationship among individuals (Skvoretz
& Fararo, 1996).

5. Conceptualization of Status and
Market
• Podolny (1993) conceptualizes status from the
perspective of market settings as:
• For producer: It is a relationship between “the perceived quality
of her products” in relation to the “perceived quality of products of
her competitors”.
• Something that consumers value for its own sake.
• Something that consumers value for the power they receive by
association with the product.
• He uses pricing behaviour and observes value of
corporate securities of investment banks to
understand status-based model of market
competition.

6. Status and Economics in
Organizational Literature
• The definition is typical of economics in fact:
• “If an actor is uncertain of the actual quality of the
goods that confront her in the market, or if she is
unwilling or unable to bear the search costs of
investigating all the different products in the market,
then the regard that other market participants have
for a given producer is a fairly strong indicator of the
quality of that producer’s output (Podolny, 1993)”.

7. Significance of Status and
Signals in the Market
• How status complicates the market?
• Produces a hierarchy of players in a particular
market.
• Dictates players’ behavior (consumers and
producers).
• Consumers often make decisions based on
status not price because status acts as a
“signal” of quality.

8. Significance of Status and
Signals in the Market
• Firms understand the importance of
“signaling”.
• High status of a firm sends strong signals for
quality and has advantages.
• Low status of a firm sends weak signals and
has disadvantages.

9. How Signaling Works and Why is
it Important?
• The given quality signals must be equal to the
consumers perceived expectation of the
quality.
• Firms develop reputations for quality based
on past actions.
• Signaling is important because we cannot
know the quality of something before we buy
it.

10. Do People Generally Speak Accurate
When They Assume that Status Equates
Quality?
$3300000
$1300

11. What signals of status are given
by the following firms?
• Lets separate in to three groups and
prepare a list of 5 status signals perceived
by you for each of the following industries
and think of their significance for
stakeholders and nominate a group leader
who would present it.
• Restaurants
• Software
• Pharma

12. Lets Compare Your List With Status
Signals of Fortune 500 Firms?
• Charitable giving
• Profits
• Market share
• Total assets under management
• Various entities interested in the company

13. Unraveled High Status
Reputations
• Why is status so hard to control (intractable) or
deal with?
• Lack of market intelligence to consumers
• Loyalty to the high status firm or good
• Social relations
• Can we come up with any example of
intractability?
• Automobile industry

14. Assumptions of Status and
Quality
• Assumption 1: Quality is unobservable prior to
consumption.
• Assumption 2: Market status is a signal of
quality upon which consumers rely to make
decisions.
• Assumption 3: A producer’s relations with
others in the market biases the evaluation of
quality…

15. Weak Links Between Status and
Quality
• Status is not always a reliable marker of
quality.
• For example, size of mutual fund attracts
investors – yet performance often suffers once
the fund becomes too big.

16. Segments of the Market
• Another reason is market segmentation
requirements.
• Actors may have status requirements of their
own.
• Trade publications
• Scholarly publications
• College text books
• Motorcycles
• Cars

17. Consequences of Status and
Quality Interlinkage
• Highly reputable goods/firms get more.
• High status firms attract the best employees.
• High status publishers get the best
manuscripts.

18. More Examples: Consequences of
Status and Quality Interlinkage
• Access to retail space goes to highly
reputable firms.
• Access to key suppliers.
• Opportunity to bid on work – top six
accounting firms/executive education
providers.

19. The Significance of Status
• What benefits do you think famous brands
(e.g., Adidas, Ralph Lauren, Hilfiger or any
others) give to the:
• Producer?
• Buyer?

20. Significance of Status for
Producer
• Lowers the cost of the transaction and increases
profits.
• Word of mouth versus expensive advertising
• Less time convincing the buyer
• Can often change more
• Greater market share
• Other Advantages
• Access to capital/credit from banks.
• Possibly lower wages if an employee values the
workplace
• Advantage over lower status producers because costs
are lower
• Secure invitation to bid for business

21. Significance of Status for
Consumer
• Lowers risk of a bad purchase.
• Increased social status because of buying a
high status good.
• Saves the consumer time in shopping
around.

22. Matthew Effect
• Higher status actors receive more attention
and recognition than lower status actors for
the same accomplishment.
• The greater one’s status the more profitable it
is to produce a good of a given quality.

23. Producers of Lower Status
Invest in
the real
quality
Profits go
up
Invest in
the signal
first
Invest in
real quality
or invest in
signals of
quality

24. Question
• Given that high-status actors making affiliations with
low-status actors would drop their status and the
opposite is true for low-status actors, how can low-
status firms convince the high-status actors to form
ties with them? Do you think resource dependence is
significant in this case? For example, low status actors
can control resources required by high-status actors.
Do these actors have better ways to gain such ties?
• How to distinguish low-status actors from middle-
status actors both theoretically and empirically? For
example, if middle-status have no sense of security like
low-status actors do, the mechanism underlying
middle-status conformity may not be valid.

25. Why higher status actors do not
dominate in the market?
• They could effectively drive out competition
by underbidding lower status producers.
• They could buy out a competitor.
• Google plans to buy “Looker”, a data
analytics company.

26. Expansion has Limitations
• If a high status producers attempts to fill the
position of a low status producer.
• Reputation suffers
• Which alters its cost/revenue profile

27. How Do High Status Producers
Get Around This Problem?
• Construct separate identities to compete in
separate markets.
• Acuma vs. United Assurance
• Suits under different labels

28. How Easy is it to Change One’s
Status Position?
• Staying at a position minimizes costly
production decisions that might not work out.
• K-Mart trying to upgrade itself.
• Sears

29. Questions: Investment Banking
• How does the theory of status based
competition play out in this environment?
• How were status scores determined for
the investment banks?
• Why are higher status banks able to
underbid lower status banks?
• If they can, how can lower status banks
compete?

30. Questions
• In the study how did the status effect
spread?
• How did the volume of business effect
status?

31. Conclusions
• High status banks can underbid lower status banks
because status is a signal of quality and perception of
quality lowers transaction costs and increases profits.
• The more the underwriter (bank) is thought to be of
high quality, the less the deal will cost to put together.
• What underlies status? Perceived honesty of bank,
volume of business, prestige and wealth of clients.
• Increased volume will cease to have an effect on status
if returns from the high volume producer are poorer
than expected.

32. Conclusions About the Relationship
Between Volume and Status
• Short term volume history and underwriting
quality are closely linked… high volume
implies knowledge of the market. (league tables
published in trade journals)
• However, high status is insulated from
fluctuations in volume.
• Moving up the status order is very difficult.
(10x more volume is required to move up one
status position. Banks cannot buy their way to
higher status.)

33. STATUS: INSIGHTS FROM
ORGANIZATIONAL SOCIOLOGY
Sauder et al. (2012)

34. Outline
• Introduction
• Determinants of status
• Quality vs status
• Consequences and constraints of status
• Status and network
• Status hierarchies
• Conclusion, future research, and questions

35. Introduction
• This paper is a review of literature on status that discusses:
• Determinants of status and its effects.
• Mechanisms of status that produce those status consequences.
• Structure and hierarchies of status.
• Emphasizes to develop further research on the structure of status
hierarchies rather than actors within the status hierarchies.
• Focuses on literature where status is the key analytical concept
and the empirical settings pertains to organizations, markets, and
products.
• Exclusions: The status dynamics of individuals or groups within
organizations is out of scope of this paper however, it indicates
bridges between organizational and economic scholars that might
be interesting to investigate.

36. Determinants of Status
• There are two streams of research who determine status
differently.
• Organizational
• Sociological
• Organizational researchers argue that the status of affiliates of a
firm influence its status.
• Sociological researchers argue the role of external arbiters or
critics to be sole determinants of status.

37. What About Quality vs Status?
Organizational
status
Perceived
quality
Organization or Market
• In sociology, status shows a measure of imperfect correlation.
• Can we differentiate methodologically the status and quality?

38. Questions
• Which one has more value - firm reputation and
status which indicate quality or firm celebrity?
• For example, Elon Musk’s celebrity status can
supplement or even supplant other traditional
organizational functions? For instance, Tesla spend
$0 on advertising. Can they only do this because of
the celebrity of Elon Musk?

39. Consequences and Constraints
of Status
• Advantages of status
• Constraints on behavior
• Mechanisms
• Visibility and informational control.
• Sense of security.

40. Status and Network
• Relational structure of status hierarchies is observed by economic
and organizational sociology.
• Sociologists claim that deference cannot be seized by an actor
(Ridgeway 1984, p. 62) but rather is something that is awarded by
others (Gould 2002, Ollivier 2004).
• Network approach to study deference relations.
• Networks of status-conferring relations
• Status positions
• Emergent hierarchies
• Actors prefer to form attachments to qualified or talented others.
• Actors suffer when attachments are unreciprocated.
• Actors are influenced by how their peers have formed attachments.

41. Question
Is the status of other parties in a network a resource
dependence defined by the resource dependence
theory? Similarly, is status a source of legitimacy
defined by the institutional theory (e.g., what some
studies termed as “status legitimacy”)?

42. Status Hierarchies
• The study of status hierarchies draws attention to the broad
contextual and structural factors that help shape status dynamics
within fields.
• The size of the status system plays an important role in
determining the enjoyment of status rewards
independent of the behaviours in which that actor
engages (Frank, 1985).
• Important structural features are individual differences in
salient characteristics, degree of social influence, and
degree of reciprocity (Gould, 2002).

43. Status Hierarchies
• How changes in the basis of status distinction and the manner in which
these values are adjudicated powerfully influence the distribution of
status?
• One impetus behind such changes is a broad transformation in a
field’s organizing belief system or logic that alters how the field
defines what is status worthy.
• A second impetus of change in the determination of status
distinction for organizational fields is the introduction of formal
criteria and third party judges.
• A third and final insight generated by a focus on status hierarchies is
that status hierarchies often overlap, crosscut, and compete, and
that these interactions among hierarchies have significant
consequences for the status actors within them.

44. Future Research Directions
• Although organizations have been shown to gain or
lose standing in their field as a result of real changes in
quality, the ability to link to higher-status affiliates
(Podolny & Phillips 1996), or innovative practices (see
Podolny 1993), such transformations in actor-level
characteristics are not sufficient or satisfying
explanations of status change.
• Deeper examination of the assumption that actors rely
on status signals to reduce uncertainty.
• Further consideration is needed regarding the nature of
uncertainty faced by decision makers.

45. Future Research Directions
• The extent to which relational status cues are
operationally distinct from other kinds of
positional cues discussed within sociology
(see Jasso 2001).
• More concerted study of status hierarchies—
their structures and characteristics, how they
interact with one another, and how they
influence the status activities of those within
them—is a promising direction for future
research. Conceptualizing

46. Question & Answer