The Persistence of Lenient Market Categories

Research across disciplines presumes that market categories will have strong boundaries. Categories without well-defined boundaries typically are not useful so are expected to fade away. We suggest many contexts contain lenient market categories, or less-constraining market categories, that persist and become important. We argue this fact can be explained by looking at market categories from the producer perspective. Lenient market categories have more flexibility and allow for a wider range of fit. As a result, we expect there to be high rates of entry into lenient categories. At the same time, lenient market categories have drawbacks: they do not clearly convey what an organization does and do not identify specific sets of potential consumers. This means organizations are more likely to exit. When entry rates are higher than exit rates, lenient market categories will endure over time. We also predict that organizations exiting lenient categories will enter other lenient categories, further fueling the persistence of such categories. Finally, this trend is exaggerated when influential external agents favor leniency. We find support for these ideas in a longitudinal analysis of organizational entry into and exit from market categories in the software industry.