When Reinforcing Processes Generate an Outcome-Quality Dip

Jerker Denrell () and Chengwei Liu ()
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Jerker Denrell: Warwick Business School, University of Warwick, Coventry CV4 7AL, United Kingdom
Chengwei Liu: European School of Management and Technology (ESMT) Berlin, 10178 Berlin, Germany

Organization Science, 2021, vol. 32, issue 4, 1079-1099

Abstract: When does market success indicate superior merit? We show that when consumer choices between products with equal prices depend on quality but also on past popularity, more popular products are not necessarily of higher quality. Rather, a medium level of popularity may be associated with lower quality than lower levels of popularity. Using a formal model, we show that this kind of nonmonotonic association occurs when reinforcing processes are strong. More generally, a dip can occur when outcomes depend on both quality and resources and the latter are allocated bimodally, with some being given a lot of resources and most receiving little. Empirically, we illustrate that such a dip occurs in the association between movie theater sales and ratings. The presence of a dip in the outcome-quality association complicates learning from market outcomes and evaluation of individuals and new ventures, challenges the legitimacy of stratification systems, and creates opportunities for sophisticated evaluators who understand the dip.

Keywords: reinforcing processes; quality; performance evaluation; movie industry; luck (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:32:y:2021:i:4:p:1079-1099

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