Why are products or producers that span multiple categories penalized in competitive markets? A recent study by Assistant Professor Greta Hsu and colleagues Professor Michael T. Hannan of the Stanford Graduate School of Business, and Assistant Professor of Management Özgecan Koçak of Sabanci University in Istanbul, Turkey, examines the effects of market specialization in the U.S. feature-film industry and eBay.

Their paper, “Multiple Category Memberships in Markets: An Integrative Theory and Two Empirical Tests,” was published in the February issue of the American Sociological Review. Using advanced statistical techniques, the researchers found that when a film spans many genres—for example, it could be classified as a Western/comedy/adventure—its audience appeal and box-office revenue shrinks. Similarly, if a seller on eBay specializes in a single category, the likelihood the auction will end successfully with a sale increases. If a seller operates in multiple categories, the likelihood of success decreases.

Hsu and her colleagues identify two distinct processes that contribute to these dynamics. First, consumers who perceive that a product belongs in multiple categories tend to find those products less appealing than products identified with a specific category. Second, the producers whose products span multiple categories often fail to develop the capabilities to excel in any one category. Hsu’s findings shed light on the benefits of producing and marketing products to specific market niches.