Looking into the Past: Audience Heterogeneity and the Inconsistency of Market Signals

Abstract

Prior literature has emphasized that inconsistency of market signals leads to evaluation penalty. However, limited attention has been paid to the heterogeneity of audiences who deal with inconsistency. I argue that audiences differ in the extent to which they process different market signals, which may largely shape the effect of signal inconsistency. When audiences fail to process all signals, they may not perceive signal inconsistency, thereby weakening its effect on product evaluation. It is hence important to investigate audience heterogeneity in theorizing signal inconsistency. In this study, I focus on the distinction between two important audience groups: professional critics and end consumers. Specifically, I argue that signal inconsistency exerts a stronger effect on critics’ evaluations than on consumers’ evaluations, because critics are more likely than consumers to process various market signals. I argue further that critics can act as an important intermediary to bridge the effect of signal inconsistency on consumers, even though consumers may not process all signals themselves. I test these ideas in a sample of video games released between 2001 and 2016 and find general support.