Cannibalization and option value effects of secondary markets: Evidence from the US concert industry

Published

Journal Article

Copyright © 2014 John Wiley & Sons, Ltd. 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.

Full Text

Duke Authors

Cited Authors

  • Bennett, VM; Seamans, R; Zhu, F

Published Date

  • January 1, 2015

Published In

Volume / Issue

  • 36 / 11

Start / End Page

  • 1599 - 1614

Electronic International Standard Serial Number (EISSN)

  • 1097-0266

International Standard Serial Number (ISSN)

  • 0143-2095

Digital Object Identifier (DOI)

  • 10.1002/smj.2299

Citation Source

  • Scopus