Uncertainty in the video games industry: Sequels and other signals

Markets for hard-to-value products are characterized by consumers’ uncertainty in relation to the alignment of product quality and personal preferences. Signaling theory suggests that signalers can reduce consumers’ product uncertainty and, thus, increase product adoption. In this paper, we examine the extent to which producers launch sequels to generate customer demand and how these interact with other signals such as the inclusion of stars, media adaptations, and positive expert reviews. Using a dataset of 1,043 UK released video games between 2007 and 2010, we find that sequels reduce consumers’ uncertainty and hence influence a product’s adoption. However, more sequel iterations of the game tend to have diminishing returns. Yet, these negative effects can be partially reverted in combination with the inclusion of a star, a media adaptation and positive expert reviews