An Economic Analysis of Rebates Conditional on Positive Reviews

In the prevailing e-commerce environment, conditional rebates have emerged as a common business practice on leading online platforms such as Taobao. Because rebates are only offered to purchasing consumers who post positive online reviews, a key concern is that it can easily induce fake reviews that might harm consumers. We theoretically analyze the seller’s optimal conditional-rebate strategies based on heterogeneous consumers’ online-review-posting behavior and derive three practically important findings. First, it is not always profitable for strategic sellers to pursue the conditional-rebate strategy. Blindly offering incentives may not help achieve the goal of review manipulation. Second, the conditional-rebate strategy does not necessarily result in fake reviews. Fake reviews occur only if consumers’ moral cost is low and the review-posting cost is not too high. Third, under certain conditions, offering conditional rebates can even increase consumer surplus and social welfare. Platform owners or policy designers can help reduce social losses by offering transparent sales information and by appropriately controlling the platform review-posting cost to induce quality reviews. Our study offers new insights into the fake-review phenomenon induced by conditional rebates and sheds new light on the policy debate about whether platforms should completely ban incentivized reviews.

Decisions on Probabilistic Selling for Consumers with Different Risk Attitudes

Consumer attitudes toward probabilistic goods are affected not only by their personal preferences, but also by their risk propensity. However, because the probability of obtaining their preferred items is determined by the retailer, consumers must search for related information and rely on their own subjective judgments to reduce the risk of not obtaining them. This study investigates the effects that consumer risk attitudes and word of mouth have on consumers’ purchase decisions regarding probabilistic goods and develops a pricing model for probabilistic selling in which a retailer offers probabilistic goods to heterogeneous consumers with different risk attitudes and possible social interactions. The analytical results show that a retailer’s profit decreases as the degree of risk aversion increases under the probabilistic selling strategy. In addition, word of mouth affects consumers’ purchasing decisions regarding different degrees of belief that they will obtain their preferred items. When the word-of-mouth effect decreases, the consumers’ perceived probability of obtaining their preferred items also decreases, which, consequently, reduces the retailer’s profits.

Strategic Manufacturers in Online Cash-Back Shopping

Cash-back industry is now witnessing surging development. Prior works on cash-back sites focus mainly on the demand side, while we are also interested in the supply side. We develop a game theoretical model with a manufacturer, an online retailer, cash-back site(s), and heterogeneous consumers. We find that when the cash-back channel cannot attract new consumers, the manufacturer raises the wholesale price and the retailer raises the retail price, which may lead to the cash-back paradox where all consumers face higher prices. Therefore, when there exists a cash-back channel, the manufacturer is always worse off and the retailer is better off when low-type consumers’ product valuation is intermediate, and consumer surplus and social welfare are both lower. When the retailer affiliates with two competing cash-back sites, the manufacturer contributes to the mitigation of double marginalization problem by raising the wholesale price to a lesser extent, which drives the surprising result that when there exists downstream competition, cash-back sites enjoy higher commission rate and under some circumstances, offer lower cash-back rate and enjoy higher profit. We also show that only when the cash-back channel makes the size of the low-type segment double will the manufacturer be better off with this channel.

Influence of strategic consumers on the network goods market

One of the important trends in modern economic development is the expanding variety ofso-called network commodities. Network commodity is such a good the usefulness of which for each consumer depends on the total number of using it consumers. The purpose of the paper is to study dynamic pricing in the network commodity market with a positive network effect in the presence of two types of consumers: myopic, taking into account only the current utility of the commodity, and strategic, focused on utility for the entire period of use of the commodity. Market dynamics, including price trajectories maximizing the monopolist supplier's revenues, are established by running numerical experiments on the corresponding theoretical model. The features of this dynamics are revealed for the cases of a large share of myopic consumers and under the conditions of dominance of strategic consumers. It is demonstrated that, in contrast to the situation in the market of ordinary commodities, a monopoly supplier of the network commodity may be interested in the presence of strategic consumers in the market. The more such consumers are present, the shorter the period of warming up the market by the supplier by means of low prices and the higher the rate of the consequent price growth. Strategic consumers find themselves hostage of their own focus on the integral effect in consumption. The directions of further research of the market of network commodities with the heterogeneous consumers are presented.

The Value of Incumbency When Platforms Face Heterogeneous Customers

We study competition for the market in a dynamic model with network externalities, focusing on the efficiency of market outcomes. We propose a representation of the strategic advantages of incumbency and embed it in a dynamic framework with heterogeneous consumers. Then, we completely identify the conditions under which inefficient equilibria with several platforms emerge at equilibrium; explore the reasons why these inefficient equilibria arise; and compute the value of incumbency and analyze why static models generally exaggerate it. (JEL D43, D62, L13, L86)

Autonomous demand, multiple equilibria and unemployment dynamics

The paper presents a medium-run growth model driven by autonomous demand, where aggregate demand and supply interact and unemployment is present and plays different roles. In particular, it generates a feedback from supply to aggregate demand rooted in the presence of heterogeneous consumers and an uncertain environment. Two are the main consequences of this approach. The first is that multiple equilibria can be generated. The second is that equilibria may have different stability properties. In this perspective, growth becomes a dynamic process where initial conditions matter and history plays an important role.