A Sociocultural Paradigm for Pricing: How Status, Cognitive Authority, and Professional Culture Qualify Market Values
AbstractTwo economic paradigms—neoclassical orthodoxy and behavioral heterodoxy—dominate modern price theory. Especially in actual practice, economics monopolizes discussions around pricing with most market actors paying little or no attention to competing sociological theories. In fact, one sociological perspective—performativity—highlights this fact to conclude that economics performs pricing in markets. In contrast, I argue that the sociology of markets needs to actively make explicit the price mechanism implied by its differences from economic theories. I first introduce the rationale for a research agenda developing a sociocultural price paradigm and initiate the agenda in Chapters 2 through 4.
Chapter 2 begins by investigating the under-theorized social mechanisms underlying performativity, especially the link between social networks and performative acts. I propose that jurisdictionally dependent status-derived cognitive authority links social position to the fulfillment of felicity conditions necessary for successful performative acts. I qualitatively study this mechanism at work among investment banks (underwriters) influencing Initial Public Offering (IPO) market prices. Underwriters exploit their status position to promulgate IPO pricing methods contradicting both neoclassical rationality and performativity.
Chapter 3 investigates how cultural resistance to such jurisdictionally dependent status-derived cognitive authority impacts pricing. I analyze over 800 IPOs in the United States over the past decade to show that socialized routines encapsulated in professional modus operandi significantly qualify pricing. Contradicting purely strategic views of action, private-equity controlled issuers whose modus operandi agree with underwriter methods actually achieve worse pricing than other issuers.
Chapter 4 incorporates social structural signaling effects with the previous findings to complete a holistic sociocultural price model of IPOs. In particular, I show how professional status exerts multiple, competing effects on financial prices, integrating certification, Matthew, and cognitive authority effects into one coherent framework. I differentiate these effects by audience segmentation. Structural equation modeling analysis reveals the simultaneous operation of these three effects of underwriter status on approximately 2,200 IPOs over the past fifteen years. Furthermore, I identify a fourth status effect (adverse certification), again distinguished by audience segmentation.
I conclude in Chapter 5 with suggestions to advance this research agenda.
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