Online Ratings – who decides what games you buy? - A study on the impact of online ratings on sales performance on the Swedish video game market
Abstract: This study examines the relationship between online ratings and the sales performance of video games on the Swedish market. The thesis aims to fill a gap in the research within the fast growing field of video games and contribute to the theoretical understanding of how online ratings in a word-of-mouth framework can serve as a transaction cost reducer. It also aims to assist firms active in the video game market with input on how consumers value online ratings and how it affects the sales performance of a given game. The study finds several unique results and shows that, while sharing some key characteristics with other entertainment markets, the video game market stands out with some unique mechanics. User ratings have a positive but diminishing impact on sales performance while professional ratings does not seem to have any impact which highlights the effect of consumer Word-of-Mouth in relation to the power of professional critics. Strong evidence was also found for the effect of uncertainty costs as games with a higher deviation from the average rating showed lower sales performance. Furthermore, in opposition to most findings on other entertainment markets, the quantity of ratings posted for a given game has a negative impact on sales performance, possibly showing a strong “community-effect” that tends to warn other consumers of disappointing games. The community-effect overshoots any feasible awareness effect.
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