Strategic Overcapacity in Live-Streaming Platform Selling

38 Pages Posted: 22 Sep 2020

See all articles by Anyan Qi

Anyan Qi

University of Texas at Dallas - Naveen Jindal School of Management

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Liqun Wei

Tianjin University - College of Management and Economics

Jianxiong Zhang

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: August 6, 2020

Abstract

We study the capacity investment strategy of a manufacturer who sells his product on a live-streaming shopping platform. The manufacturer first decides the production capacity, then the platform decides her commission, and finally the manufacturer sets the retail price. The platform has an informational advantage about the product demand due to proximity to the market and accessibility to the sales data of similar products. The manufacturer without a direct access to the demand information tries to infer it from the commission decision of the platform, which results in a signaling game. Interestingly, the manufacturer may strategically install a strictly higher capacity than any demand to be realized. The overcapacity also benefits the manufacturer by driving down the commission charged by the platform when observing a small market potential due to the signaling effect.

Keywords: capacity investment, live-streaming platform selling, asymmetric information, signaling

JEL Classification: D21, D24, D82, M11

Suggested Citation

Qi, Anyan and Sethi, Suresh and Wei, Liqun and Zhang, Jianxiong, Strategic Overcapacity in Live-Streaming Platform Selling (August 6, 2020). Available at SSRN: https://ssrn.com/abstract=3668390 or http://dx.doi.org/10.2139/ssrn.3668390

Anyan Qi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Liqun Wei

Tianjin University - College of Management and Economics ( email )

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

Jianxiong Zhang

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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