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The Signaling Effect of Critics: Do Professionals outweigh Word-of-Mouth? Evidence from the Video Game Industry

Daniel Kaimann () and Joe Cox ()
Additional contact information
Daniel Kaimann: University of Paderborn
Joe Cox: Portsmouth Business School

No 10, Working Papers Dissertations from Paderborn University, Faculty of Business Administration and Economics

Abstract: Experience goods are characterized by information asymmetry and a lack of ex ante knowledge of product quality, such that reliable external signals of product quality are likely to be highly valued. Two potentially credible sources of such information are reviews from professional critics with expert reputations, as well as ‘word-of-mouth’ reviews from other consumers. This paper makes a direct comparison between the relative influence of both critic and user reviews on the sales of video games software. In order to empirically estimate and separate the effects of the two signals, we analyze a sample of 1,480 video games and their sales figures between 2004 and 2010. We find clear evidence to suggest that reviews from professional critics have a significantly positive influence on sales that outweighs word-of-mouth reviews. Consequently, we support the hypothesis that professional critics adopt the role of an influencer whereas word-of-mouth opinion acts merely as a predictor of sales.

Keywords: Signaling Theory; Information Asymmetry; Critics; Word-of-Mouth; Video Game Industry (search for similar items in EconPapers)
JEL-codes: C31 D82 L14 L82 (search for similar items in EconPapers)
Pages: 17
Date: 2014-08
New Economics Papers: this item is included in nep-mkt
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Citations: View citations in EconPapers (1)

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