| Two observations motivate this study. First, I note that markets generally comprise relatively distinct product categories. Second, I identify a preliminary phase of competition: before a seller may distinguish its product as worthy of purchase, consumers must regard it as a legitimate member of its intended product category. 'Multi-category products', offerings that combine elements of different product categories, exemplify this constraint. Such offerings defy classification and thus face the difficult challenge of gaining recognition from each buying public.;A focus on 'mediated markets', settings in which an audience of 'critics' represents the principal target of marketing campaigns, illuminates these social dynamics. In such markets, the tendency for a product to attract reviews from the critics who cover a particular product category indicates whether it is a legitimate member of that category. Thus, a product's network of reviews registers whether the seller's view of the product is recognized by its relevant public. A 'mismatch' between self-concept and market identity reflects confusion on the part of critics. Such a product should suffer from lower demand. Further, sellers of such a product face pressure to refashion it so that it conforms with recognized categories.;I apply this framework to corporate securities markets and the question of corporate scope. I argue that, with respect to such markets, a diversified corporation may be likened to a multi-category product. Further, Wall Street securities analysts play the role of the critic in these markets. This perspective leads to two predictions: first, a 'mismatch' between the range of industries in which a firm competes and the industry coverage of the analysts who follow it leads to a capital market discount; second, a diversified firm is more likely to exit those business lines in which its participation has not been legitimated through analyst coverage.;In separate analyses, I present evidence that supports both hypotheses. These results inform debates regarding the nature of corporate de-diversification as well as more general questions about role conformity, market structure, and network process. In addition, the discrepancy between price and value shown here challenges prevailing theories of capital markets. |
