Triple Uncertainties: Credence Goods, Deceptive Counterfeits, and Fake Product Reviews
Posted: 1 Oct 2021
Date Written: August 31, 2021
Worried about unwittingly buying counterfeits, online customers often resort to “the wisdom of crowds” (e.g., product reviews) before purchasing. However, unethical sellers may game the review system through buying fake reviews. In this paper, we use a two-period game theoretical model to study a market that consists of an authentic seller and a deceptive counterfeiter; they sell credence goods (e.g., nutritional supplements and N95 masks) whose qualities are difficult to evaluate, so customers cannot differentiate genuine products from counterfeits even after consumption. In the beginning, the authentic seller decides the level of selling effort. In the first period, customers make purchasing decisions and leave either positive or negative product reviews. In the second period, the counterfeiter decides whether to buy fake positive product reviews. Then, each seller may receive a product badge that is granted based on the fraction of reviews being positive. Customers update their beliefs about sellers’ authenticity depending on badge status and then make purchasing decisions. We find that the authentic seller can benefit, while the counterfeiter can be worse off, from the counterfeiter having an option to buy fake product review. We also show that the fake review option can increase consumer surplus. Lastly, even though the counterfeiter bears the cost of fake review, the counterfeiter can be better off from a higher price of fake review, whereas the authentic seller is worse off.
Keywords: credence goods, deceptive counterfeit, fake product reviews, online platform, product badges
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