Ancillary market signalling: A two-stage model of economic reputation on ancillary market success

ABSTRACT

Due to high market search costs, public information can have a stronger impact than private information on consumer choice behaviour. As a result, a priori economic success serves as a signal of high quality, reduces information asymmetries and can thus have an influence on the market performance in ancillary markets. Using weekly sales data from the ancillary DVD market, consisting of 8664 movies and their commercial performance between 2006 and 2018, we empirically test the influence of economic reputation on ancillary market success. We find clear evidence to suggest that former box office and DVD market success is positively associated with DVD sales. We additionally show that for distributors it is rational to follow a price skimming strategy of setting prices high when introducing new products to the market. These results provide practical insights into how businesses can maximize their profits by improving their decisions concerning product launch strategies.

KEYWORDS:

• Ancillary market
• signalling theory
• information asymmetry
• economic reputation
• Hollywood economics

JEL CLASSIFICATION:

• C33
• D82
• L14
• L82

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

Funding

This work was partially supported by the German Research Foundation (DFG) within the Collaborative Research Centre ‘On-The-Fly Computing’ (SFB 901).