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Emergence of Market Orders

Emergence of Market Orders: Audience Interaction and Vanguard Influence

By Özgecan Koçak Sabancı University, Turkey; Michael T. Hannan, Stanford University; and Greta Hsu, University of California at Davis.

A stable commercial market requires a shared understanding between its users over the key features which make that market function – for example what the product is, who can trade it and the processes by which that trade takes place. Such understanding draws upon tools such as labels and measurements and, in a wider context, extends beyond the physical goods and into other areas such as equity or labour.

In the past, studies of shared market understanding have tended to concentrate either on a micro level, at which the meaning arises from collective effort; or a macro level, where meaning is drawn from the larger-scale structure of the institutions. To date, little work has been undertaken to link the two.

Linking the micro and macro levels

With this in mind, Sabancı University’s Özgecan Koçak and his colleagues set out to look at market connections between the macro and the micro levels. They theorised that an individual in the market (an audience member) interacts with other individuals (micro) but that at the macro level the extent of individuals’ communication (their repertoires) converges and so understanding increases.

They developed several propositions based around the idea that increasing engagement is associated with greater use of things which are commonly understood, for example labels or specific subcategories; and also that certain audience members (such as those who buy as well as sell and those who are more actively engaged) are key influencers.

Such things are difficult to measure and they approached the problem via a quantitative study of interactions on the auction website eBay. They selected 23 sale categories (ranging from ‘Elvis memorabilia’ via ‘health’ to the descriptively-named ‘weird stuff’) to reflect both a symbolic value and a degree of uncertainty, and analysed all auctions from April 2000 to August 2001 – a total of 41,490.

Identifying the common understanding

Looking at how products were labelled and at levels of activity (in terms of numbers of bids) the researchers tested a range of hypotheses relating to individual engagement and the roles of key influencers. Broadly, they posited that those who adopted a more specific approach to labelling (using brand names, for example) and those who engaged more actively in the market as both buyers and sellers were likely to be more successful.

The results of the statistical analysis indicated that sellers who also engaged as bidders were more likely to use proper names in their labels and also more likely to be specific in their choice of subcategory – both indicative of an understanding of the market and both in line with the researchers’ hypothesis. The findings relating to levels of engagement and the significance of key influencers were less clear cut.

The approach identifies a coupling between micro and macro levels, but one which would benefit from further exploration, especially in terms of larger-scale empirical studies.