Deceptive signaling on globalized digital platforms: Institutional hypnosis and firm internationalization

Abstract

We investigate the degree and duration of the effects of deceptive signaling on globalized digital platforms, vis-a-vis naturally formed organic signaling such as importer review scores and discernible inducing signaling such as banner advertisements. Sponsored listing has emerged as a powerful tool for facilitating Internet-mediated exchanges in internationalization activities. Some digital platforms based in weakly regulated countries provide sponsored listing to exporters without explicitly disclosing that sponsorship. This constitutes a deceptive signal to importers in strongly regulated countries whose governments require sponsorship disclosure. Deceptive signaling is hypothesized to stimulate an institutional hypnosis on importers, with the most immediate and largest enhancing effects on exporter performance of the three types of signaling. Organic signaling is hypothesized to exert the most durable effect. Using transaction-level data from a globalized digital platform assembled with web mining methods, we develop a novel algorithm to detect deceptive signaling. Regression results from generalized method of moments estimation support these hypotheses. Our study is among the first to investigate institutional hypnosis manifested in increasingly widespread and unchecked forms in digitized international business transacting. By discovering and reporting on a dark side of institutional arbitrage, we offer actionable implications for digital platform governance, participants, and regulators.