We connect two distinct streams of research on categories to study the role of within-category typicality in the context of legitimacy shocks. We argue that, following a legitimacy shock, member organizations of the tainted, focal category suffer equally, irrespective of their typicality. However, only the typical members of the newly favored, oppositional category benefit. Therefore, the effects of legitimacy shocks are asymmetrically influenced by typicality. We argue this pattern is the result of a two-stage process of categorization by audiences, whereby audiences prioritize distinctions between organizations in a newly favored category and spend limited efforts considering distinctions in the tainted, focal category. We examine our theory in the context of the U.S. financial services industry, where four different kinds of organizations engage in competition: traditional commercial banks, community banks, single-bond credit unions, and multibond credit unions. Consistent with our theory, we show that both traditional commercial banks and community banks suffer in terms of deposit market share following the legitimacy shock of the 2007 financial crisis, but the relative gains to credit unions are strongest for single-bond credit unions.
Bibliographical noteFunding Information:
Funding: Funding from the Dean’s Grant at the Carlson School of Management and the Grant-in-Aid from Office of the Vice President for Research, University of Minnesota, is gratefully acknowledged. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2020.1403.
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- Categorical competition
- Credit unions
- Financial crisis
- Legitimacy shock