Cognitive Economy and Product Categorization

Abstract

In mediated markets, the categorization of products by mediators is critical to efficient interaction between producers and consumers. As organizational research tends to focus on the consequences of categorization rather than its antecedents, however, we know relatively little about why mediators assign one category label or another to a product. In this study, we argue that two informational properties of labels, specificity and distinctiveness, determine the outcomes of mediators’ categorization decisions. Our analysis of product categorization decisions made by members of an online music community, 2000–2020, supports this argument. We find that a label’s odds of being assigned to a product increase (a) if this label encodes information that is neither too similar nor too different from that which is encoded by a superordinate label, that is, it has moderate specificity; and (b) if it encodes information that differs as much as possible from that which is encoded by horizontally related labels, that is, it has maximal distinctiveness. These findings persist after controlling for other possible determinants of mediators’ categorization decisions, including producers’ claims to labels, products’ typicality, and mediators’ expertise. Funding: M. Piazzai received funding from the Community of Madrid [EPUC3M12, VPRICIT] and the Spanish Ministry of Science and Innovation [RYC2021-032325-I]. M. Liu received funding from Durham University Business School. Supplemental Material: The e-companion is available at https://doi.org/10.1287/orsc.2021.15751 .