The Authenticity Discount of Firm Growth: Consumer Inferences on Diversification and Expansion
(A2022-107660)

AUTHORS

Christian Schaefer, Goethe University Frankfurt; Dominik Hettich, Goethe University Frankfurt; Torsten Bornemann, Goethe University Frankfurt

ABSTRACT

Consumers quest for authenticity even in ubiquitous products and experiences, a demand reflected in the sensitivity towards the proportion of extrinsic motives in firms’ behavior. We theorize the influence of two common trajectories of firm growth, diversification and expansion, on consumers’ inferences about firms’ authenticity and related downstream consequences. Work on demand-side externalities of firm growth so far focused on the impact of different authenticity signals but not on consumers’ inferences about authenticity. Across three experiments, we document the discount effects of diversification and expansion on two distinct inferences: concerns about whether a firm’s behavior reflects its intrinsic value propositions (moral authenticity) and about the degree of typicality that an organizational identity occupies within a socially constructed category (type authenticity). We show that consumers discount moral authenticity significantly more as a result of expansion when firms are specialized (vs. diversified), which suggests that lower type authenticity immunizes against moral devaluations.