Manipulation for Competition: Pricing Models in the Presence of Promotional Reviews

By Tingting Nian (University of California), Liangfei Qiu, Jingchuan Pu & H. Kenneth Cheng (University of Florida)

Abstract:      In the past decade, we are witnessing an explosive growth of firm-initiated promotional/fake product reviews in online platforms. In this study, we develop an analytical model to analyze the effect of review manipulation under two commonly used pricing regimes: wholesale pricing and agency pricing. Manufacturers could compete along two dimensions: prices and review manipulation. We find that in both wholesale and agency pricing regimes, as expected, an increase in the cost of manipulation will reduce the manipulation level of the high-quality manufacturers; but surprisingly, as the cost of manipulation increases, the manipulation level of the low-quality manufacturer may increase. The reason is that both the high-quality and low-quality manufacturers use review manipulation as a tool for competition, and the cost of manipulation will affect the manipulation incentives of both manufacturers simultaneously. Therefore, a stricter anti-review manipulation strategy adopted by the platform may unexpectedly incentivize the low-quality manufacturer to conduct a higher level of manipulation. We also compare the manipulation levels in the two pricing regimes and find that the total review manipulation level is higher under the wholesale model. These results should be of interest to practitioners as they highlight the interaction between review manipulation and pricing regimes in reality.