4 - The importance of status in markets

Summary

The importance of status in markets is well established. Since Podolny (1993) introduced his status-based model of market competition, more than 160 articles published in top management and sociology journals have explored this area. These articles show that market status affects a broad range of outcomes, including the perceived quality and legitimacy of organizations, the costs of producing a given level of quality, the prices that organizations can charge for specific products, their attractiveness as exchange partners, and their ability to exercise agency. Despite the widespread agreement that status plays an important role in markets, there is less agreement about how to define status. Status has traditionally been defined as a position in a social system that can be ranked among other positions based on relative prestige or social esteem (Weber, 1968; Linton, 1936; Merton, 1957). Following Podolny (1993), however, status has more recently been redefined simply as a signal of quality, thus removing status from its traditional anchoring in the social system. We argue that defining status as a signal of quality unnecessarily limits the explanatory power of status and confuses status with other signals of quality, most notably reputation. We develop instead a framework for studying status in markets that integrates work on status as social positions (Linton, 1936; Merton, 1957) and work on identity as social categories (Hannan, Pólos, and Carroll, 2007), thus providing a more comprehensive perspective on status in markets.

We seek to accomplish three specific objectives in this chapter. First, we develop a new conceptual framework that integrates theoretical research on status and identity to clarify what we understand by status in markets. Our status–identity framework builds on the definition of status as a position in a social system. However, we add that these positions entail identities that reside in the intersections of the horizontally and vertically differentiated social categories that define the social system. Our status–identity framework builds extensively on the existing research on status and identity because we seek to provide conceptual clarity to existing and future research on status and identity rather than distancing ourselves from that research. We emphasize that our framework must not only help distinguish status from other related theoretical concepts such as reputation and legitimacy, but must also be useful in empirical research by helping to develop theory-driven research agendas. Second, we use our status– identity framework to systematically review existing research on status in markets. Rather than reviewing all market status research, we use our framework to identify the most important theory-driven research questions, and then provide a selective review of how these questions have been addressed in empirical research. Third, having used the status–identity framework to identify important research questions and to evaluate how existing research addresses these questions, we then identify and discuss more systematically the most important areas for future research.