ASYMMETRY BY DESIGN? Identity Obfuscation, Reputational Pressure, and Consumer Predation in U.S. For-Profit Higher Education, by Adam Goldstein and Charlie Eaton CSHE 5.20 (May 2020)

Abstract: 

This article develops and tests an identity-based account of malfeasance in consumer markets. It is hypothesized that multi-brand organizational structures help predatory firms short-circuit reputational discipline by rendering their underlying identities opaque to consumer audiences. The analysis utilizes comprehensive administrative data on all for-profit U.S. colleges, an industry characterized by widespread fraud and poor (though variable) educational outcomes. Consistent with the hypothesis that brand differentiation facilitates malfeasance by reducing ex ante reputational risks, colleges which are part of multi-brand companies invest less in instruction, have worse student outcomes, and are more likely to face legal and regulatory sanctions (relative to single-brand firms). Maintaining multiple outward-facing brand identities also mitigates reputational penalties in the wake of law enforcement actions, as measured by news coverage of the legal action, and by subsequent enrollment growth. The results suggest that identity multiplicity plays a key role in allowing firms to persist in furnishing sub-standard products, even amid frequent scandals and media scrutiny. Predatory practices are facilitated not only from the inherent informational asymmetries in a given product, but also from firms’ efforts to make themselves less legible to audiences. The analysis contributes to research on higher education, organizational theory, and the sociology of markets.

 

Keywords: for-profit colleges, organizational theory, markets, inequality

Author: 
Adam Goldstein
Publication date: 
May 11, 2020
Publication type: 
Research and Occasional Papers Series (ROPS)