Signaling for Access to High‐Demand Markets: Evidence from the US Motion Picture Industry

Document Type

Article

Publication Date

11-1-2017

Publication Title

Journal of Cultural Economics

DOI

10.1007/s10824-016-9273-x

ISSN

1573-6997

Abstract

We develop a signaling model in which imperfectly competitive firms signal quality through expenditures in segmented markets. Separation in this model results in high-quality firms selling their products in a high-demand, and highly quality elastic, period. Low-quality firms sell their product in a low demand but less quality-sensitive period. A dataset including 1697 US theatrical releases between 1998 and 2008 is compiled and explored for evidence of this separating equilibrium. We find that our measures of signal intensity and realized quality (budgets and critical ratings, respectively) are both significantly greater during high-demand periods. Ticket sales are also shown to be more sensitive to expected quality as measured by budgets during the high-demand season. Other seasonal differences and implications are explored.

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