Fitting innovations into existing categories: Evidence from mortgage‐backed securities

Abstract Research Summary What role do innovators play in the evolution of product categories? While management scholars have documented multiple cases of innovators creating new product categories, less attention has been paid to how innovators reshape existing ones. This paper explores the possibility that innovators can change the boundaries of established categories to accommodate their products. In an historical case study of the acceptance of mortgage‐backed securities (MBS) as bonds in the United States between 1970 and 1995, I find that MBS issuers succeeded in fitting their products into the bond category by introducing a new dimension to the category. Managerial Summary This study expands our understanding of category evolution by showing that innovators can reshape the boundaries of existing product categories to accommodate new offerings. Specifically, it finds that innovators succeeded in modifying a prototype‐based category by positioning their product as a substitute—a goal‐based category. Redefining category boundaries allowed the innovators to secure membership for their products without needing to create a new category or fully redesign the product. This research highlights the agentic role of innovators in the evolution of categories, the interaction between goal‐based and prototype‐based categories in innovation diffusion, and the importance of commensuration for achieving product‐category fit.