Up to standard?

The trade-off between conformity and differentiation that market entrants face has recently been enriched by a new sociological insight: differentiation is rewarded only within the confines of taken-for-granted market categories. Entrepreneurs, however, routinely engage in combining existing market categories. The present paper attempts to reconcile these seemingly different views by focusing on the role of market uncertainty. In particular, we predict that the propensity of entrants to blend multiple categories increases with market uncertainty. Upon considering the endogenous influence of uncertainty on market positioning, the positive returns obtained by entrants from combining multiple categories become apparent. Because differentiation inspires the positioning of entrants in the face of market uncertainty, the frequent adoption of the same combination by competitors dampens the performance returns derived from it. Our hypotheses find support from the analysis of a large sample of Hong Kong films during 1975-1997.