University of Southern California

Secondary Market Research Recognized with Industry Awards
Study Co-Authored by Victor Bennett wins Annual Conference Prizes
November 20, 2013 • by News at Marshall

A research study by Marshall faculty on how secondary markets affect the marketplace value of goods sold by a primary outlet was recently recognized by two leading professional organizations. The paper, “Search Frictions, Secondary Markets, and Value Appropriation,” authored by Victor Bennett, assistant professor of management and organization at USC Marshall, Feng Zhu, assistant professor of business administration at Harvard Business School (recently of USC Marshall), and Robert Seamans, assistant professor of strategy at NYU’s Stern School of Business, received the Best Conference Paper Prize for Practice Implications at the Strategic Management Society’s Annual International Conference in Atlanta. The paper also received an honorable mention—one among five finalists—for the Best Conference Paper Award.

In addition, the study was recognized with an award for Distinguished Paper at the Academy of Management Conference.

“It’s an honor to be recognized by your peers. For someone from a business school, it’s a particularly big honor to be recognized for implications to practice,” said Bennett. “One of the special things about business school is the extent to which we try to make our work valuable to practitioners and to our students who we hope are going to become practitioners.”

The study focused on the U.S. concert ticket industry and found that following the entry of Craigslist—a secondary market to main ticket providers—concerts by artists with low popularity decreased in price, while concerts with highly popular artists increased in price. Researchers characterized two effects that came into play to explain their findings. The option value effect for popular shows, they illustrated, increases a customer’s willingness to pay for a product because of the existence of a secondary market, where they can resell their ticket if they can’t use them. “The box office also can charge more because now there are scalpers that want to buy them in addition to the people who actually want to go. So it’s both changing the composition of the market and the willingness to pay from the people in the buyers’ market,” said Bennett.

The cannibalization effect, which occurs when secondary markets force the primary seller to compete against earlier versions of its products or offerings, drove down the price of less popular shows as scalpers lowered the price of these shows, forcing the box office to do the same to remain competitive.

“For the industry we looked at specifically, what this suggests is that there are situations where it might be worth it to constrain capacity because it may be the case that the price increase that you get from being likely to sell out overcomes the fact that you are selling fewer tickets. That’s the very narrow implication,” said Bennett. “The much broader application is that businesses that are concerned about dealing with the secondary market should try and come up with some ways to make the secondary market a less-good alternative to the primary market. For example, Intel’s warranty only applies to the first buyer; that’s a way that you can make the primary market seem pretty different from the secondary market. And that means that you are going to get less cannibalization.”

About the USC Marshall School of Business
Consistently ranked among the nation's premier schools, USC Marshall is internationally recognized for its emphasis on entrepreneurship and innovation, social responsibility and path-breaking research. Located in the heart of Los Angeles, one of the world's leading business centers and the U.S. gateway to the Pacific Rim, Marshall offers its 5,700-plus undergraduate and graduate students a unique world view and impressive global experiential opportunities. With an alumni community spanning 123 countries, USC Marshall students join a worldwide community of thought leaders who are redefining the way business works.