Reputation Spillover from Agencies on Online Platforms: Evidence from the Entertainment Industry

Abstract

Digital markets have proliferated in recent years, overcoming many market inefficiencies by facilitating direct interactions between consumers and creators. Thanks to this disintermediation, consumers now have access to a vast number of alternatives, while creators can efficiently reach huge markets. However, the success of digital markets has created a concomitant challenge for creators: differentiation. In crowded markets, agencies (e.g., publishing companies in books, freelance agencies in online labor markets, independent labels in music) can differentiate creators by signaling product quality. But how do agencies’ reputations affect product success for creators? Can some agencies do more harm than good? To investigate these research questions, we theorize how variation in creator and agency reputation leads to asymmetric and heterogeneous effects, namely that (1) more reputable agencies have a stronger positive effect on less reputable creators than they have on more reputable creators, and (2) less reputable agencies hurt more reputable creators more than they hurt less reputable ones. Analyses of more than one million observations from two digital markets provide empirical support for these theory-driven arguments. The findings have design implications for markets and contribute to our understanding of how agencies, depending on creator reputation, can either benefit or hurt product success.