Sales manipulation strategies of competitive firms on an e‐commerce platform: Beneficial or harmful?

Abstract

AbstractConsumers are affected by the relative sizes of products’ sales volumes, which is regarded as consumers’ sales comparison behavior when purchasing online. Therefore, some firms manipulate their sales volumes to attract consumers. To shed light on firms’ sales manipulation, we develop game theoretical models to investigate sales manipulation strategies for a high‐quality firm and a low‐quality firm on a platform. We identify conditions for firms’ sales manipulation and investigate its impact on the platform. We find the following: (1) A small amount of sales manipulation volumes may harm each firm. (2) When only the high‐quality (low‐quality) firm manipulates its sales volume, the total market share shrinks (expands), and the profit of the low‐quality (high‐quality) firm is damaged. In this case, the platform can only benefit from the high‐quality firm's sales manipulation. When both firms manipulate sales volumes, each firm aims to claim a higher sales volume than its competitor. (3) At equilibrium, when the unit sales manipulation cost is intermediate, only the high‐quality firm manipulates its sales volume. When the unit sales manipulation cost is low, both firms manipulate sales volumes and consequently get trapped in a Prisoner's Dilemma. In this case, the platform's profit cannot be improved. This study then incorporates considerations of consumers’ sales comparison behavior, nonlinear cost structures for sales manipulation, firms’ long‐term vision, and sales manipulation strategy in competitive supply chains to reveal that most aforementioned results are qualitatively robust.