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Market-Based Solutions to Vital Economic Issues
Research
Oct 21, 2023

The Influence Mechanism of Customer Review Manipulation on Competitive Pricing Decision-Making: Empirical and Theoretical Analysis

Abstract

Customer review manipulation is a common strategy employed by sellers of online marketplaces to combat competitors. The impact of this deceptive behavior on the competitive pricing of online marketplaces is intricate. First, buying fake reviews incurs additional costs and alters customer demand in competitive settings by misrepresenting product information. Second, the pricing is determined through internal competitions, where sellers compete with each other within an online marketplace. This is because the winner’s price is the default price displayed to customers, representing the price of the online marketplace. Meanwhile, online marketplaces also effectively manage prices in order to stay competitive in external competition against multi-channel retailers, further complicating this problem. To unravel this influence mechanism, we build instrumented econometric models and develop a game-theoretic model to empirically and theoretically analyze this influence mechanism in the context of internal and external competitions, respectively. Our study empirically shows that the level of fake reviews is positively associated with the competitive pricing level of online marketplaces. This empirical finding, combined with our analytical results, suggests that manipulating customer reviews decreases customer demand in the long term. Based on these primary findings, we analytically demonstrate that multi-channel retailers can enhance their profits by incorporating information about fake reviews into their competitive pricing decision-making.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.  


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