Manipulation for Competition: Agency Pricing in the Presence of Quality Misrepresentation

Posted: 14 Jul 2017 Last revised: 12 Sep 2019

See all articles by Jingchuan Pu

Jingchuan Pu

Pennsylvania State University - Department of Supply Chain & Information Systems

Tingting Nian

University of California, Irvine - Paul Merage School of Business

Liangfei Qiu

University of Florida - Warrington College of Business Administration

Hsing Kenneth Cheng

University of Florida - Warrington College of Business

Date Written: July 6, 2017

Abstract

In e-commerce platforms, consumers rely heavily on product reviews, sales volume, and number of product page visits to infer product quality. The past decade witnessed an explosive growth of seller-initiated quality misrepresentation by using fake reviews, fake sales volume, and fake clicks to manipulate consumers’ quality perception on product. We develop an analytical model to investigate sellers’ quality misrepresentation under the agency pricing regime, wherein sellers compete along price and quality misrepresentation. We examine three different strategies the platform can adopt to counter sellers’ quality misrepresentations: increasing the cost of misrepresentation, implementing a more lenient product return policy, and enhancing consumers’ identification ability. We find that as the cost of misrepresentation increases or product return policy becomes more lenient, the misrepresentation level of the high-quality seller always decreases but the misrepresentation level of the low-quality seller may surprisingly increase. In other words, a stricter anti-misrepresentation strategy may unintendedly incentivize the low-quality seller to conduct more quality misrepresentation. Our analyses show that implementing a more lenient product return policy is more effective to decrease the misrepresentation level of low-quality seller than the other two strategies. These findings demonstrate the necessity to evaluate different anti-misrepresentation strategies, and the effectiveness of those strategies on different sellers.

Keywords: quality misrepresentation, agency pricing, product returns

Suggested Citation

Pu, Jingchuan and Nian, Tingting and Qiu, Liangfei and Cheng, Hsing Kenneth, Manipulation for Competition: Agency Pricing in the Presence of Quality Misrepresentation (July 6, 2017). Available at SSRN: https://ssrn.com/abstract=2998319

Jingchuan Pu

Pennsylvania State University - Department of Supply Chain & Information Systems ( email )

Dept. of Supply Chain & Information Systems
University Park, PA 16802-3306
United States
16802 (Fax)

Tingting Nian (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States

Liangfei Qiu

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/qiuliangfei/

Hsing Kenneth Cheng

University of Florida - Warrington College of Business ( email )

P.O. Box 117169
Gainesville, FL 32611-7169
United States
352-392-7068 (Phone)
352-392-5438 (Fax)

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