Strategic Overcapacity in Live-Streaming Platform Selling
38 Pages Posted: 22 Sep 2020
Date Written: August 6, 2020
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
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