Curious case of Rotten Tomatoes : Effects of quality signalling in the US domestic motion picture market.

Quality signalling in motion picture markets is hardly a new topic. It has been covered by many researchers over the years. However, most of the previous studies focused on quality signals in interactions between moviemakers and moviegoers. This study employs a more holistic approach as the author attempts to evaluate effects of quality signals throughout different stages of movies’ life cycle. The author has identified three audiences that movies are presented to; and, each group of audience generates a quality signal for the next audience. Based on the feedback from test audiences, moviemakers decide on when to show movies to professional critics and when to allow them to publish their reviews. Interpretation of these timelines become quality signals for the professional critics who interpret shorter time slot for review publication as a signal of the low quality of the movie and vice versa. Professional critics write their reviews which when published on review aggregators become quality signals for the moviegoers. Reviews generated by the initial moviegoers are interpreted by the moviegoers who intend to watch movies at a later stage. All three assumptions are operationalised and evaluated in a series of linear regression tests in this research on a sample containing 130 out of 134 widely released movies in the US and Canada domestic market in 2017. All of the abovementioned quality signals found to be significant as they could explain at least 40 % of the variance of respective response variables