Networks as the Pipes and Prisms of the Market

Abstract

This article draws an analytical distinction between two types of market uncertainty: egocentric, which refers to a focal actor’s uncertainty regarding the best way to convert a set of inputs to an output desired by a potential exchange partner, and altercentric, which denotes the uncertainty confronted by a focal actor’s exchange partners regarding the quality of the output that the focal actor brings to the market. Given this distinction, the article considers how the value of “structural holes” and market status vary with these two types of uncertainty. The article proposes that the value of structural holes increases with egocentric uncertainty, but not with altercentric uncertainty. In contrast, the value of status increases with altercentric uncertainty, but declines with egocentric uncertainty. Thus actors with networks rich in structural holes should sort into markets or market segments that are high in egocentric uncertainty; high‐status actors should sort into markets that are low in egocentric uncertainty. Support for this claim is found in an examination of the venture capital markets.