Informational Spillovers from Protests Against Corporations: A Tale of Walmart and Target

Informational Spillovers from Protests Against Corporations: A Tale of Walmart and Target

By
Lori Yue, Hayagreeva Rao, Paul Ingram
Administrative Science Quarterly. October
21, 2013, Vol. 58, Pages 669-701

In this study of the impact of protests against Walmart (a first entrant) on Target (a second entrant) from 1998 to 2008 in U.S. geographic markets, we develop and test a theory of information spillovers from protests against corporations proposing to enter a new market. We argue that the number of protests directed against a first entrant is a noisy signal for the second entrant because such protests are likely to be dominated by protest-prone activists and so do not reflect the sentiments of the community. The second entrant is likely to discount protests against the first entrant that are led by protest-prone activists and rely instead on protests led by local, decentralized activists as indicative of a community’s preferences. We argue that the second entrant differentiates between protests against the first-entrant firm and the organizational form, and discounts protests against a specific firm but not those against the form (e.g., big-box stores). Further, the second entrant is likely to rely on the reaction of the first entrant as an indication of the meaning of the protest. Finally, all of these signaling effects will be stronger in markets in which the second entrant has no experience and so lacks local knowledge. The study provides broad support for our arguments. information spillover protests market entry Walmart Target
In contrast to the traditional social movement literature, which has emphasized opposition to the state, a fast-growing body of work analyzes private politics: why and how activists target large corporations (Davis et al., 2005; Baron and Diermeier, 2007; Ingram, Yue, and Rao, 2010; King and Pearce, 2010; Rao, Yue, and Ingram, 2011). Big corporations exert an enormous influence over wages and employment in communities, the exploitation of natural resources, and the use of space. Unlike democratic governments, which are highly open to influence by the electorate and protected from consequent delegitimation, large business firms are less open to outside influence and have few access channels for the public (Walker, Martin, and McCarthy, 2008; Weber, Rao, and Thomas, 2009). As a result, those lacking influence through access to corporate suites are more likely to use subversive and confrontational tactics such as protests, strikes, and boycotts. Protests against corporate opponents communicate the dissatisfaction of key stakeholders, signal curtailed sales and cash flows, and jeopardize the reputation of the firm. Media attention amplifies the effect of such tactics and induces firms to give in to the demands of activists (King and Soule, 2007; King, 2008).
Yet for the most part, the new literature on private politics has been concerned with the direct effect of protests on their intended target but has neglected the spillover effects of protests on other firms. The premise is that protests targeting a large firm, such as Nike, are assumed to have an impact only on Nike. A staple of the social movement literature, however, is that the outcomes of protests include “an enormous range of unanticipated effects … [that] far surpasses the explicit demands made by activists” (Tilly, 1998: 268). Haveman, Rao, and Parachuri (2007) developed a typology to understand such spillover effects. They distinguished between original targets and unintended targets, and direct and indirect effects, and suggested that translational work is needed for protests to have effects that scale beyond their immediate targets. While their typology is useful, it leads to the interesting question of how the translation process happens. Understanding the translation process matters because researchers have long noticed that not all protests are created equal (Lipsky, 1970; Verba and Brody, 1970; Nie and Verba, 1975). One avenue to understanding the unintended consequences of social movements is to see if there are spillovers in protests against corporate targets; this requires that we analyze how second entrants in a market interpret and respond to protests directed against a first entrant.
The literature on market pioneers provides an account to explain “externalities” in a market but glosses over possible spillovers from protests targeting first entrants, or pioneers. The literature holds that those who develop new technologies or new markets generate externalities, that is, they incur costs, but the benefits are appropriated by subsequent entrants (see Golder and Tellis, 1993; Agarwal and Gort, 1996; Min, Kalwani, and Robinson, 2006). Some scholars argue that first entrants who enter markets early can develop cost advantages, preempt scarce assets, or erect other barriers to entry, such as consumer loyalty (see Lieberman and Montgomery, 1988; Agarwal and Gort, 1996). Other scholars insist that pioneers are at a disadvantage due to high development costs and easy imitation by later entrants (Golder and Tellis, 1993; Min, Kalwani, and Robinson, 2006). The implicit premise in this literature is that the constraints for pioneers include only capabilities rather than the organized political opposition from consumers and stakeholders in markets that is represented by protests.
Protests against market pioneers can provide information to later entrants because they help to make public some of the previously hidden information about the preferences of consumers and stakeholders in a market. Informational spillovers occur when protests against a first entrant reveal a community’s preferences and affect second entrants’ assessment of the potential viability and profitability of the market. Yet protests against a first entrant are noisy signals for the second entrant. On the one hand, activists in communities attack first entrants to keep out other possible entrants in the future. Because it is costly to organize collective action, activists do not want to repeatedly incur the costs of organizing such action and so have strong incentives to deter the first entrant in  the hope that subsequent entrants may then be deterred from entering the market. On the other hand, because the second entrant has a different organizational identity, it needs to distinguish whether a protest against a first entrant is an opportunity or a threat. A related problem, as Lohmann (1993) argued, is that activism is usually dominated by the protest-prone, that is, activists who are fired by ideological zeal and represent an extreme end of the distribution of preferences. So a second entrant needs to decide whether the sheer number of protests against a first entrant truly represents the preferences of the majority in a community. We theorize here that to make sense of protests, second entrants will go beyond simply observing the number of protests. Instead, to tell whether protests are informative or not, second entrants will pay close attention to who sponsors the protests, what their claims are, and how a first entrant reacts to the protests. Second entrants will discount protests led by protest-prone activists, such as those associated with national social movement organizations, who reflect the position of the national leadership more than that of the local community. When protests against a first entrant are led by local activists belonging to the community and representative of it, second entrants are unlikely to enter the market. But second entrants are likely to discount protests that target only the first entrant firm, focusing on its identity, and to be dissuaded when protests attack the organizational form itself. We expect that second entrants will rely on informational spillovers from protests when they lack local knowledge because they have no experience in that particular area.We use the term first and second entrant broadly. Hence, there may be first and second entrants in a geographic market, a customer segment, or adopting a new practice, such as executive compensation, or even exiting a market through divestment. In this paper, we test our hypotheses in the context of protests against Walmart and their effect on Target’s entry behavior from 1998 to 2008. Walmart and Target are the two largest discount retailers in the U.S., and the period between 1998 and 2008 was an era of expansion and contention for big-box stores in the U.S. In that period, Walmart made 2,049 proposals to open new stores in American communities, out of which it encountered 805 protests and managed to open 1,234 stores. At the same time, its closest rival, Target, floated 1,110 proposals, but attracted only 74 protests, and was able to open 1,046 stores. While accounts in the popular media trace the fact that there are more protests against Walmart to the better corporate image of Target (e.g., Serres, 2005), our paper tests the idea that Target encountered fewer protests than Walmart because it usually entered markets after Walmart did and therefore benefited from information spillovers from protests against Walmart.