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Abstract
This paper aims to understand the increasingly prevalent phenomenon of shoddy goods and help honest firms better cope with the unfair competition posed by shoddy goods producers. We develop a game-theoretic model to examine the interaction between an honest manufacturer of quality goods (the truth-teller) and an unscrupulous producer of shoddy goods (the deceiver). Three power structures are considered: with the truth-teller as leader, with the deceiver as leader, and with equal-power players. Our equilibrium analysis suggests that when consumers make only one-time purchase, the truth-teller is prone to suffer profit loss. Yet some power structures may help the truth-teller mitigate the risk of losing profit. Specifically, when the announced quality of the deceiver is low enough, the truth-teller-as-leader power structure reduces the truth-teller’s risk of profit loss; in contrast, when the announced quality of the deceiver is not low enough, the deceiver-as-leader power structure has a better mitigating effect; and the equal-power-player power structure always works worst. We also investigate the role of consumer repurchase behavior in fighting shoddy goods by extending the model to incorporate consumer dissatisfaction and repurchase frequency. A numerical study indicates that consumers’ quality expectation disconfirmation sensitivity can deter the deceiver from exaggerating its product quality – either when consumers’ repurchase frequency is high or when consumers repurchase at a medium frequency in a market led by the truth-teller. Our findings yield new theoretical insights for firms and industries seeking to combat shoddy goods.
... Therefore, how to achieve carbon emission reduction under the premise of ensuring economic benefits has become an urgent problem for supply chain enterprises. At present, many scholars have studied carbon emission reduction strategies for supply chains from various perspectives, such as low-carbon policy [2,[9][10][11], consumers' low-carbon preferences [12,13], and supply chain coordination mechanisms [14,15]. Wang et al. [2] used differential games to study the carbon emission reduction decisions of construction supply chains under government subsidies. ...
... The power structure in a supply chain reflects the status and discourse power of the enterprise, which has a significant impact on operational decision-making and performance [15,16]. Currently, the research on supply chain decision-making under different power structures has achieved obvious results. ...
With the global climate problem becoming increasingly severe, governments have adopted policies to encourage enterprises to invest in low-carbon technologies. However, the opacity of the carbon emission reduction process leads to incomplete consumer trust in low-carbon products as well as higher supply chain transaction costs. Based on this, this paper constructs Stackelberg game models with and without blockchain under different power structures and compares the impact of these models on low-carbon emission reduction decisions. The results show that: (1) blockchain does not necessarily improve enterprise profits and can only help enterprises maintain optimal profits within a certain range when the carbon emission cost is low; (2) when consumers’ environmental awareness is high, the blockchain can incentivize manufacturers to enhance carbon emission reduction, and it has an obvious promotional effect on retailers’ profits; and (3) the profit gap between enterprises in the supply chain is larger under different power structures, and the implementation of blockchain can coordinate profit distribution and narrow the gap between enterprises. Compared with the manufacturer-dominated model, the emission reduction in products is maximized under the retailer-dominated model. Our study provides theoretical support for the government to regulate greenhouse gas emissions as well as for the optimization of enterprises’ decision-making supported by blockchain.
... Luo et al. [44] further study the influence of channel power structure on the retailer's product selection behavior. In addition, Hu et al. [25] study the interrelationship between quality commodity manufacturers and inferior commodity manufacturers and provide suggestions for quality manufacturers to cope better with unfair competition. Hu et al. [26] show that the quality and cost of delivery service affect the competition between online and offline retailers. ...
With the integration of the online channel and the offline channel, numerous consumers experience the product offline yet purchase online, which is called the “showrooming effect”. Given the showrooming effect in a dual-channel supply chain, we investigate the pricing strategies of supply chain members under various channel power structures, i.e., Manufacturer Stackelberg (MS), Retailer Stackelberg (RS), and Vertical Nash (VN). The findings indicate that both the intensity of channel competition and the showrooming effect coefficient affect online demand and wholesale price when the manufacturer is dominant. However, the showrooming effect coefficient is the only factor that impacts retail prices and offline demand. Furthermore, the retail prices and the offline demand when the retailer dominates are lower than those under other channel power structures, challenging the conventional wisdom that “the dominant party always profits more”. Interestingly, contrary to the intuition that the showrooming effect is always detrimental to the retailer’s interest, we find that it boosts the retailer’s profitability in both MS and VN scenarios. We verify that these findings are robust across several model extensions, including advertising strategy, asymmetric demand information, self-price elasticity, different market potentials, and manufacturer’s direct selling cost. Our study can provide decision-makers with some managerial insights into the showrooming effect.
... Besides, Biancardi et al. (2022) analysed anti-counterfeit penalties and enforcement and their effects on society. Hu et al. (2021) studied how an honest firm tackles the competition with an inferior goods producer. Ghamat et al. (2021) analysed how intellectual property rights can be used to combat copycats. ...
We consider a supply chain comprised of two competing manufacturers, where one is a blockchain-enabled disclosed quality information manufacturer (BP manufacturer), and the other is a manufacturer without blockchain support (OP manufacturer). The duopoly game, OP manufacturer-led Stackelberg game, and BP manufacturer-led Stackelberg game are considered. In addition, we also consider two types of consumers, namely expert consumers who exactly know blockchain and rookie consumers who have a limited knowledge of blockchain. The results demonstrate that (a) the BP manufacturer should serve both expert and rookie consumers if the percentage of expert consumers is sufficiently low; (b) the optimal blockchain-enabled disclosed quality information level increases with the blockchain ability and percentage of expert consumers; (c) blockchain adoption leads to higher profits for the OP manufacturer when the blockchain ability is high and this finding is robust under various power structures; and (d) the BP (OP) manufacturer-led Stackelberg game benefits the OP (BP) manufacturer best, and as the BP manufacturer’s decision-making grows, she needs to use blockchain to provide more detailed product quality information. Extending our work to several scenarios, we find that some of the results are robust while the others change.
Luxury brands are increasingly adopting blockchain technology to combat counterfeiting, yet they face a dilemma in addressing the market of second-hand luxury products. While a luxury brand’s involvement in second-hand sales could diminish its exclusivity, it could also increase the brand’s profits. Motivated by luxury brands’ concerns about venturing into the second-hand market while preserving their brand exclusivity, this study presents an analytical model to investigate how blockchain authentication impacts their strategies in the second-hand market. A distinctive feature of this study is the conceptualisation of aspirational value associated with the luxury brand. Our analysis reveals that premium and mass-market brands can improve brand exclusivity by enhancing second-hand product quality. However, luxury brands may diminish brand exclusivity if the quality of second-hand products is high. Additionally, luxury brands can maintain exclusivity by avoiding the second-hand market when using blockchain for authentication, provided that the authentication cost is below a threshold. Furthermore, our research sheds light on the strategies of various fashion brands (mass-market, premium, and luxury brands), contingent upon their aspirational values, to combat counterfeit products by deploying a blockchain-based authentication mechanism for the second-hand market.
In light of the growing prevalence of online channels, e-commerce platforms have increasingly collaborated with suppliers or rural cooperatives to open self-operated stores, with the aim of maximizing profits. However, given the regional variation in supply chain dynamics, suppliers and rural cooperatives may not always occupy the same position in the supply chain, leading to simultaneous challenges of channel conflicts and power imbalances. About the channel intrusions by e-commerce platforms, this study introduces one fresh-product supply chain of one producer, one provider and one B2C e-commerce platform and studies the optimal strategy for enterprises in the fresh-product pricing and channel selection with a theoretical model construction. Results from the study show that e-commerce platforms in any model will support the weaker side in the supply chain for much more profits. At the same time, rural cooperatives and suppliers will actively cooperate with e-commerce platforms’ opening self-run stores. The theoretical value of this study lies in its insights into the optimal strategies for supply chain enterprises in the face of e-commerce platform intrusion and power-structure competition. The practical value of the research lies in its provision of guidance for e-commerce platforms to support the weaker party in the supply chain and to actively cooperate with rural cooperatives in launching self-run stores. However, further research is needed to explore optimal strategies for enterprises under different power structures and information asymmetry.KeywordsPower StructureFresh-keeping EffortChannel Conflict
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This paper investigates the service investment and pricing decisions under different power structures when there exist demand disruptions. We consider a supply chain consisting of a single manufacturer and a single retailer, and establish a game theory model under three typical channel power structures: Manufacturer Stackelberg, Retailer Stackelberg, and Nash. We find that when the demand is disrupted, whether it is a centralized system or decentralized system with different power structures, the service level and production quantity are robust when the demand disruption is sufficiently small, and the wholesale price is also robust under certain circumstance. The comparison results of equilibrium pricing and service level under different power structures are affected by the supply chain power and service cost coefficient no matter who provides the demand-enhancing services. Moreover, it can be found that the power structure most suitable for the manufacturer or the retailer is not invariable and the results are related to the change of some parameters.
It is widely considered that the popularity of consumer-to-consumer product exchange (C2C-PE) can reduce customer’s demand for new products, which hurts original fashion brand’s sales and profit. However, this perspective overlooks the impact of C2C-PE on the knockoff trading, a noticeable challenge the fashion brands is encountering. Taking a fresh perspective, we argue that C2C-PE can encourage knockoff customers to purchase original products because of the additional product exchange value. To validate this argument, we construct analytical models to explore the impacts of C2C-PE on the members of the fashion supply chain and the consumers. By comparing between the cases with C2C-PE and without C2C-PE, we theoretically find that the presence of C2C-PE benefits the original supply chain, its members and the consumers, while harms the knockoff supply chain, its members and the consumers. The findings are robust when considering: (i) strategic quality decision; (ii) price dependent C2C-PE utility and (iii) consumers’ conspicuous behavior. Managerial implications and future research agenda are discussed.
In recent years, criticism of online marketplaces has been incessant because of the widespread presence of counterfeit goods. This study develops an analytical framework to investigate the interactions among an online marketplace, an authentic brand seller, and a counterfeiter of the brand. Both sellers exert efforts to attract sales for the brand, and the online platform determines its effort level in combating counterfeiters. Our analysis reveals several interesting insights. First, our analysis shows that the platform’s combating effort has a non-monotonic impact on both sellers’ profits. Second, the platform’s optimal combating effort level relies on the production cost of the authentic firm. The platform finds it optimal to exert maximum possible effort to combat counterfeiters when the unit cost of the authentic product is very low, and not to combat when the unit cost is very high. Third, interestingly, the authentic seller can be better off with a higher production cost due to the strategic reaction of the platform whose revenue derives from both types of sellers. The intuition and managerial implications of these insights are discussed.
We extend the deceptive advertising model of Piccolo et al. (RAND J Econ 46(3):611–624, 2015) to a framework in which consumers may be loss averse. There are two sellers, competing on prices and offering experience goods with some differences in quality. Prospective customers may be harmed by deceptive advertising: a marketing practice that can induce them to make bad purchases. We show that although deceptive advertising occurs depending on the degree of consumers’ loss aversion, this behavioral bias does not reflect on firms’ prices. Nevertheless, the presence of loss-averse consumers crucially changes the optimal deterrence rule that a Public Authority should adopt against false claims and misleading advertising. Unlike Piccolo et al. (2015), in this more general model, strong enforcements may improve the buyer welfare according to the degree of loss aversion.
International and national organizations responsible for healthy food production and food consumers have too often neglected farmers, who are the producers in this cycle and are directly involved in environmental issues, integrating resources with their skills and producing agricultural crops to offer to civil society. Moreover, the health of farmers has also been neglected, when attending to their health would likely ensure a healthy environment and safe foods. Thus, the Farmer First Health Paradigm is seeking to address the fact that if international community expects a healthy environment and safe foods for future generations, then basic principles for producing healthy food in different countries should be considered and applied in their strategic plans. These principles are presented and discussed in this paper. Keywords: Food safety, Agricultural productions, Farmer health
This paper investigates the relationship between perceived service quality, customer satisfaction and behavioral intentions for the Metro of Seville (Spain), a metropolitan partially underground light rail transit (LRT). 3,211 users participated in the case study by completing a questionnaire with 4 different parts: users’ attitudes with regards to the public transit service, users’ perceptions of service quality, travel habits and socioeconomic characteristics of the participants. A 7-step analytic process was applied to the questionnaire instrument in order to adapt it to the specific characteristics of the service, to purify the scale and reduce the number of items describing the service into less number of underlying dimensions. Then, the above-mentioned relationships between perceptions, satisfaction and intentions of users in regards to the LRT service were estimated by using a Structural Equation Model (SEM) approach. Three SEM were calibrated: one for all the users, another one for captive users and the last one for non-captive users of the service. The outcomes of the models provided interesting findings and identified some differences in the attitudes of these two groups of passengers towards the LRT service.
Commercial cheating, that is, counterfeit products and lower quality products sold as genuine products, exists extensively in many countries of the world, especially in the developing countries. In this paper, we investigate the phenomena of commercial cheating, study the optimal cheating actions of inventory managers under a monitoring and limiting regime from the industrial administration office (IAO for short) and demonstrate the efficiency of monitoring and limiting such cheating activities. A newsvendor model has been considered for the inventory manager to order different quality products with different set-up costs. The model, a kind of extension of the general newsvendor problem, is viewed as a shocked inventory model. We analyse some properties of the optimal cheating policies from the point of view of an inventory manager, and investigate the effectiveness of both the punishment level and the checking rate.Journal of the Operational Research Society (2005) 56, 844–854. doi:10.1057/palgrave.jors.2601913 Published online 1 December 2004
International headlines recently presented two very different narratives of Chinese power. One was the story of China’s first spacewalk, epitomizing its significant economic and technological progress in the past thirty years of reform. The other was a sad tale of tainted milk, thousands of sickened children, and recalls of Chinese milk products in 30 countries. How is it that China can send astronauts to walk in space but is unable to produce a decent glass of milk? This contrast was not lost on Chinese observers. After the spacewalk, Xinhua, the official Chinese news agency, commented that the space scientists should be held as a model of professionalism for all of society - not just for the high technology they used, but, more importantly, because of their rigorous adherence to high professional standards. “While tainted milk has cast the brand of China-made into international humiliation, another China-made product, the Shenzhou VII spacecraft, brought pride and glory to the country’s 1.3 billion people,” said Xinhua reporter Chang Ai-ling. Sanlu, the Chinese firm at the center of the September 2008 milk crisis, was the official dairy supplier to the Chinese space program.
This paper presents a consumer-based methodology for new product pricing and positioning in the face of price competition. The price competition is modelled as a Nash equilibrium for which two complementary approaches are employed: an analytical approach of duopoly provides qualitative insights into the competitive behavior, and a numerical approach of general oligopoly provides quantitative solutions under a wide variety of market scenarios. The optimal product positioning is formulated as a Stackelberg-Nash (leader-followers) equilibrium which can be solved numerically using recent advances in the field of variational inequalities. A small example concerning analgesics is used to illustrate this methodology.
Game theory has become an essential tool in the analysis of supply chains with multiple agents, often with conflicting objectives. This chapter surveys the applications of game theory to supply chain analy- sis and outlines game-theoretic concepts that have potential for future application. We discuss both non-cooperative and cooperative game theory in static and dynamic settings. Careful attention is given to tech- niques for demonstrating the existence and uniqueness of equilibrium in non-cooperative games. A newsvendor game is employed throughout to demonstrate the application of various tools.1
A procedure for identifying misleading advertising is presented, based solely on measured consumer beliefs. An advertisement is misleading if an exposed group holds more false beliefs than a comparison group. When ten allegedly misleading advertisements were tested, two were identified as incrementally misleading, and four others were shown to be exploitively misleading.
We consider a two-tier supply chain with manufacturing as the upstream tier and retailing as the downstream tier. We focus on investigating the impact of the retailers’ competition vis-à-vis their relative positioning within the retailing tier on the performance of the supply chain. Further, we develop a stylized game-theoretic model, where a manufacturer is the leader, while multiple competing retailers are its followers. We look to generate three distinct supply chain structures by varying the positioning (tier dominance) of one retailer with the other retailer(s): (i) simultaneous setting, (ii) sequential setting, and (iii) cooperative setting. Our analysis reveals some interesting insights regarding the impact of these distinct supply chain structures on channel efficiency. For instance, we find that the supply chain becomes the most efficient under the sequential setting. The economic rationale behind this non-intuitive result is rooted in how retailers’ relative positioning in the retailing tier interacts with double marginalization. Additionally, our results suggest that retailers’ tier dominance leads to a “win-win” outcome where both the supply chain and consumers are better off. Under the sequential setting, we determine the optimal number of tier-dominant retailers while maximizing channel efficiency. Finally, using numerical studies, we investigate the impact of the degree of product substitution on channel efficiency, whereby, we find that, under the simultaneous setting, channel efficiency monotonically increases in the degree of product differentiation, which essentially is not always monotone in the sequential setting. We also demonstrate how the power imbalance between retailers complements the theory of countervailing power.
The luxury fashion industry suffers substantial losses due to non‐deceptive counterfeit purchase behavior. This study extends prior research on such behavior by investigating the factors influencing non‐deceptive counterfeit purchase behavior of luxury fashion goods in India, a country that scores high on collectivism and low on indulgence in regard to Hofestede's cultural dimensions. Specifically, (a) based on the extant literature as well as by (b) adding a novel variable, we theorize and empirically test a model that proposes a more comprehensive attitudinal construct specifically reflective of attitude to counterfeits by incorporating integrity, materialism, risk seeking, price–quality interface, smart shopper self‐perception, and subjective norms as antecedents of attitude towards counterfeit luxury products. Importantly, the paper investigates the mediating role of this comprehensive attitudinal construct in the relationship between intentions to purchase counterfeit and antecedents. The results offer novel theoretical insights that could be also advantageously employed by practitioners to restrain non‐deceptive counterfeit behavior.
The e-tailers selling global brands’ products on cross-border e-commerce platforms have been suffering from low-quality image. To solve this problem, some platforms (e.g., eBay, Lazada, and Tmall Global) have utilized blockchain for quality verification that creates customers’ trust and guarantees the products’ quality. It is widely acknowledged that the operations of blockchain require all supply chain parties’ participation. Therefore, whether the owners of the global brands have incentives to verify the quality and origin of the goods via blockchain can be critical, especially when the brand-owners are multinational firms (MNFs) owning retail divisions in the same market. In this paper, we study a co-opetitive supply chain consisting of an MNF located in high tax country/region and an e-tailer sourcing from the MNF and reselling the goods. The e-tailer competes with the MNF’s retail division in a low-tax country/region. We find that, blockchain is a double-edged sword for the MNF. It increases the MNF’s wholesaling profit, but reduces the MNF’s retailing profit and tax-planning benefit. Consequently, the MNF will not participate in blockchain if the tax disparity is large and the downstream competition is fierce.
We examine the effectiveness of using a fighter brand to combat copycatting in the luxury goods industry. In our research setting, the copycat product has a high resemblance to the luxury brand manufacturer’s original product, so customers may purchase the copycat product to gain the status utility. We find that the manufacturer should launch a fighter brand if the copycat product has a low resemblance to the original product. Moreover, the copycat will be less likely to enter the market when the manufacturer releases a fighter brand. Some insights regarding consumer surplus and social welfare are also provided.
This paper studies interactions between dishonest firms, skeptical consumers, and regulations, and it finds that higher penalty for false statements can reduce consumer surplus, firm profits, and welfare.
Some creators in crowdfunding markets have recently employed deceptive advertising to overstate their product quality. We consider a model in which the policy maker would punish such false advertising when detecting it. Using a signaling framework, we examine how deceptive advertising influences rational buyers’ purchase decisions and how the creator signals its quality via advertising, as well as price. We show that the high-quality creator finds it optimal to use price and advertising jointly to deter low-quality creators’ mimicking behavior. Moreover, whether the deceptive advertising occurs in a crowdfunding market depends on the degree of the policy maker’s regulation. Counterintuitively, a stricter regulation on deceptive advertising might not always deter the low-quality creator from mimicking. Moreover, our results also indicate that allowing a moderate level of deceptive advertising might benefit consumers because the low-type creator’s deceptive claim might motivate the high-quality creator to cover more buyers.
The luxury industries are very important nowadays. However, it is commonly believed that companies in the luxury supply chains are challenged by counterfeiting activities and the presence of gray market. In this paper, we conduct a careful literature review of the most representative papers related to counterfeiting and gray market in the operations literature. We examine both empirical and analytical studies. We uncover the research methodology, industries and objectives of the prior studies. We highlight the current state-of-the-arts findings in the area. Based on the review findings, we propose a future research agenda and discuss the implications to luxury industries.
With the boom of e-commerce, express delivery has been increasingly regarded as a bottleneck and key factor for achieving success. Additionally, whether to include such express delivery service or not is an important yet outstandingly unsolved problem for online retailers. In this regard, this paper uses a game-theoretic framework to investigate the channel structure, in which an offline retailer competes with an online retailer selling products to consumers through its partner express company. The consumers purchase from either an online or offline channel considering the delivery service as well as the inconvenience of shopping from physical stores. We consider three power structures: online retailer Stackelberg game, offline retailer Stackelberg game and Nash game. Under each power structure, we characterize the channel integration strategy for the online retailer. Interestingly, our results show that the online channel integration is not beneficial for the online retailer in most cases. Online retailers prefer to use express companies as intermediaries to avoid large logistics operations costs in the offline retailer Stackelberg game and Nash game. Only in the online retailer Stackelberg game, where the online retailer has the first-move advantage in the market, together with a moderate store-visiting inconvenience cost and a delivery service cost coefficient, will vertical integration improve the online channel’s profit. Dominant market power ensures sufficient profit to cover the logistics cost, and the moderate inconvenience cost and service cost coefficient promise a moderate logistics cost. Under this condition, the online retailer will choose the vertical integration strategy. We show in the extension that this strict condition can be relaxed when the online retailer owns a mixed channel. The online retailer with a mixed channel has more incentive to integrate than a pure online retailer does, as the mixed channel adds his power and helps to gain more market shares and profit. Our analysis generates managerial insights into the relationship between online retailers and express companies and provides a guide for implementing the vertical integration strategy in the online retailing industry.
The blockchain technology is very useful in many industries. One current application is on diamond authentication and certification, which is important in many luxury supply chains. In this paper, we explore different consumer utility driven operations models and highlight the values of blockchain technology supported (BTS) platforms for diamond authentication and certification. We build models and analytically examine both the traditional retail network operations (Model R) and the BTS selling platform (Model PL). We further extend the analysis to study the case with the BTS certification platform (Model BCR). We reveal the conditions under which one model outperforms the others. In particular, we note that the shopping convenience utility offered by the traditional retailers is a critical factor determining which model is the best. Finally, for the BTS platform operations, we study the blockchain-technology-based diamond authentication and certification (BDAC) cost and reveal that reducing it is beneficial to all parties in the luxury supply chain.
Disconfirmation models of customer satisfaction employing three alternative standards of performance were compared by using causal modeling. Pre- and post-measures were obtained from subjects in three different use situations. The disconfirmation paradigm is supported. The analysis suggests that best brand norm and product norm are additional standards used for evaluating focal brand performance.
A model is proposed which expresses consumer satisfaction as a function of expectation and expectancy disconfirmation. Satisfaction, in turn, is believed to influence attitude change and purchase intention. Results from a two-stage field study support the scheme for consumers and nonconsumers of a flu inoculation.
Many pharmaceutical companies use overt anti-counterfeiting technologies (OACTs), such as holograms, to fight counterfeiters. An OACT is typically implemented on the drug packaging, which makes it difficult for counterfeiters to produce convincing copies and easy for patients to tell the difference between authentic and counterfeit medicines. I consider a model in which an authentic firm sells its drug at a reliable source and counterfeiters and illegitimate genuine sellers sell their drugs at a dubious source. The authentic firm chooses an OACT to combat counterfeiters. I show that there may be an inverted U-shaped relationship between the complexity of the OACT and the magnitude of counterfeit medicine purchases. The nature of this relationship is a consequence of an OACT engendering two opposing effects. On one hand, adopting an OACT imposes an entry cost on counterfeiters, causing fewer counterfeiters to enter the dubious source; as a result, the drugs at this source have a greater chance of being genuine (a counterfeiters’ entry-dampening effect). On the other hand, more patients head to this dubious source rather than the reliable source owing to the increased chance of obtaining a genuine drug (a patients’ demand-enhancing effect). When the selected OACT is sufficiently complex to replicate, the former effect overrides the latter and thus the problem of counterfeit purchasing is relieved. However, when the OACT is not adequately sophisticated, the latter effect more than offsets the former. This leads to an anti-counterfeiting trap: the use of a rudimentary OACT may beget more counterfeit purchases. This result offers an understanding to the phenomenon that despite enormous spending on the upgrading of OACTs in recent years, annual global sales of counterfeit drugs have actually risen. I also find that using an OACT may result in higher prices for both counterfeit and authentic drugs. Furthermore, I demonstrate that, at the optimum, an authentic firm may find it more profitable to employ a mediocre OACT, whereas it may not use any OACTs if its price is regulated.
Since the mid-1960s European competition law has evolved into a mature body of law with a fairly coherent system for the control of unilateral conduct by undertakings in a dominant position (II.). Yet, the abuse of bargaining power underneath the threshold of market dominance has not been addressed. Since the early 1990s European contract law has developed an obviously sustainable control of unfair standard terms (III.). However, the Unfair Terms Directive of 1993 fails to protect non-consumers. And since the mid-2000s aggressive practices have been covered by the Directive on Unfair Commercial Practices (IV.). But once again, its scope of application is limited to B2C commercial practices.
Although the Directive on Unfair Commercial Practices of 2005 expressly mandates the Commission to examine B2C unfair practices, it was only the emergence of the farmer’s crisis that raised awareness of real-world problems caused by less than effective competition and the gap in specific legal provisions. While initial responses endeavoured to address these problems with a horizontal approach, the focus was narrowed in the course of the project to the food supply chain (V.).
In this paper, we use a two-period game theoretical model to examine the decisions of a manufacturer and a copycat firm who are competing for strategic customers. The manufacturer decides on the amount of its market expansion advertising investment in the first period and on its pricing strategy in both periods. Advertising increases the “size of the pie,” but eventually the manufacturer may end up inadvertently sharing the benefits with the copycat. After the first period, the copycat makes a market-entry decision, and, if it opts to enter, it also decides on a pricing strategy. The customers are strategic, and they decide whether or not to buy, when to buy, and which product to buy. We find that, interestingly, lower quality levels of the manufacturer’s product may increase the manufacturer’s prices and profit. Moreover, the manufacturer may be worse off when customers are more likely to purchase its product immediately rather than wait for a price reduction or for the copycat’s product. Finally, the copycat may be worse off when customers withhold their purchases in the first period in anticipation of the possibility of copycat product becoming available in a later period.
The online appendix is available at https://doi.org/10.1287/msom.2016.0613 .
We study a simple game in which two sellers supply goods whose quality cannot be assessed by consumers even after consumption but can be verified with some probability by a public authority. Sellers may induce a prospective buyer into a bad purchase through comparative deceptive advertising. The central contribution of this paper is the characterization of a class of pooling equilibria in which low-quality sellers deceive a buyer who is Bayes-rational and makes a purchase decision on the basis of the available information. The analysis of these equilibria suggests that high-quality firms should pursue more intensive advertising campaigns than their low-quality competitors. Surprisingly, we find conditions under which sellers’ expected profit is higher in pooling equilibria than in the separating equilibrium in which quality is reflected by prices and there is no need to waste resources in advertising. Hence, we show that there are plausible cases in which firms should be ex ante willing to tolerate some degree of deceptive advertising by low-quality competitors. In addition, although in these equilibria the buyer purchases low-quality goods with positive probability, the expected utility can be higher than in a separating equilibrium in which the buyer purchases the high-quality good for sure. In this sense, the model also offers an argument in favor of a lenient regulatory approach to deceptive advertising.
The online appendix is available at https://doi.org/10.1287/mnsc.2016.2665.
This paper was accepted by J. Miguel Villas-Boas, marketing.
Academic libraries, pursuing excellence in their products and services, are a natural entity for total quality management (TQM). Basic TQM principles include making decisions based on objective data, respecting people and their ideas, empowering all library staff, focusing on the process, and doing the job correctly the first time, all to benefit the library user. (three references) (EA)
As firms embrace collaborative principles, partners of varying strengths and standing are coming together to deliver products effectively to consumers. In a two-tier collaborative channel, a partner's relative standing is manifest in the order in which wholesale and retail prices are determined; in turn, standing influences a partner's ability to achieve profits. We propose a framework, based on two factors that specify the strength of partners across channel tiers (channel leadership) and within a tier (echelon dominance) and together determine a partner's standing in the pricing process, to effectively study various channel strength scenarios. Our analysis of Stackelberg games corresponding to these scenarios reveals interesting insights regarding the impact of channel leadership and echelon dominance, both individually and jointly. For instance, we show that the presence of a dominant player in the upstream manufacturing tier benefits both the dominant and the weak manufacturers. The leadership-dominance framework also allows us to study the effect of a retailer's sequencing of its pricing of the two manufacturers' products. By embedding the retailer's timing choices in channel strength scenarios, we find that both retailer and weak manufacturer prefer that the retailer set prices for the two products simultaneously; in contrast, the echelon-dominant manufacturer benefits from the retailer sequentially pricing the manufacturers' products. Our analysis also covers preeminent channel leaders that control both wholesale and retail prices, finding that preeminent partners achieve significant gains and consumers benefit from low retail prices. Moreover, the weak manufacturer benefits from the presence of a preeminent manufacturer.
We develop a game-theoretic model to examine the entry of copycats and its implications by incorporating two salient features; these features are two product attributes, i.e., physical resemblance and product quality, and two consumer utilities, i.e., consumption utility and status utility. Our equilibrium analysis suggests that copycats with a high physical resemblance but low product quality are more likely to successfully enter the market by defying the deterrence of the incumbent. Furthermore, we show that higher quality can prevent the copycat from successfully entering the market. Finally, we show that the entry of copycats does not always improve consumer surplus and social welfare. In particular, when the quality of the copycat is sufficiently low, the loss in status utility from consumers of the incumbent product overshadows the small gain in consumption utility from buyers of the copycat, leading to an overall decrease in consumer surplus and social welfare.
We investigate a supply chain in which a retailer is supplied by two manufacturers with differentiated brands, a good brand and an average brand. The customers in the market are segmented based on value and brand preference, namely the customer acceptance of the average brand and the customer surplus for each brand. Both horizontal competition (between the two competing manufacturers) and vertical competition (between the manufacturers and the retailer) are considered through an exploration of different power structure combinations. Multiple-stage game models are developed to examine the impact of different power structures on the pricing decisions and the profits of the manufacturers and the retailer. We find that intensified competition between the two manufacturers hurts the manufacturers and benefits the retailer. No dominance among supply chain members (the two manufacturers and the retailer) leads to the highest profit for the entire supply chain. We also find that for the two competing manufacturers, being first to announce the pricing decision results in lower profit – the second to announce benefits from knowing the rival's price. This explains why rivals prefer not to reveal decisions on prices, bid rates, and contracts, as this information represents bargaining power. The impact of customer acceptance of the average brand is also analyzed.
Over past decades, deceptive counterfeits which cannot be recognized by ordinary consumers when purchasing, such as counterfeit cosmetics, have posed serious threats on consumers’ health and safety, and resulted in huge economic loss and inestimable brand damages to the genuine goods at the same time. Thus, how to effectively control and eliminate deceptive counterfeits in the market has become a critical problem to the local government. One of the principal challenges in combating the cheating action for the government is how to enhance the enforcement of relative quality inspection agencies like industrial administration office (IAO). In this paper, we formulate a two-stage counterfeit product model with a fixed checking rate from IAO and a penalty for holding counterfeits. To minimize the total expected cost over two stages, the retailer adopts optimal ordering policies which are correlated with the checking rate and penalty. Under certain circumstances, we find that the optimal expected cost function for the retailer is first-order continuous and convex. The optimal ordering policy in stage two depends closely on the inventory level after the first sales period. When the checking rate in stage one falls into a certain range, the optimal ordering policy for the retailer at each stage is to order both kinds of products. Knowing the retailer’s optimal ordering policy at each stage, IAO can modify the checking rate accordingly to keep the ratio of deceptive counterfeits on the market under a certain level.
Spun.com, a small CD/DVD Internet retailer, has about 200,000 CD titles listed on its web site. Surprisingly, the company does not hold/own any inventory of CDs. Instead, the company partnered with the wholesaler Alliance Entertainment Corp. (AEC), which stocks CDs and ships them directly to Spun.com’s customers with Spun.com labels on the packages. In this way, the retailer avoided an estimated inventory investment of $8M Forbes (2000), since it only paid the distributor for sold products. AEC calls this distribution system “Consumer Direct Fulfillment.” According to the company’s web site, “... using AEC as a fulfillment partner gives you more time and resources to focus on attracting more consumers to your store ...”. The list of retailers practicing such forms of Internet business includes Zappos.com (Inbound Logistics 2000), Cyberian Outpost (Computer Reseller News 1999) and many others.
There are two competing sellers of an experience good, one offers high quality, one low. The low-quality seller can engage in deceptive advertising, potentially fooling a buyer into thinking the product is better than it is. Although deceptive advertising might seem to harm the buyer, we show that he could be better off when the low-quality seller can engage in deceptive advertising than not. We characterize the optimal deterrence rule that a regulatory agency seeking to punish deceptive practices should adopt. We show that greater protection against deceptive practices does not necessarily improve the buyer welfare.
Deceptive counterfeits differ from non-deceptive ones in that they are packaged and sold as authentic brand name products so that consumers may buy counterfeits unknowingly. When a distribution channel, referred to as the general channel, has been penetrated with deceptive counterfeits, a brand name company may need to restructure the way its products are distributed and rely on reliable channels such as certified stores or manufacturer-owned stores to guarantee 100% authenticity. In this paper, we first identify the conditions under which the general channel will carry deceptive counterfeits, and then analyze the optimal supply chain structure in the presence of counterfeits as well as by incorporating the wholesale price decisions, consumers’ risk attitude towards counterfeits and consumer loyalty towards the reliable stores. Our main finding is that the brand name company should continue to sell, sometimes exclusively, through the general channel despite deceptive counterfeiting under various conditions.
This article summarizes all NARB panel decisions concerning truth and accuracy in national advertising rendered during the mechanism's first eight years of operation and establishes parameters that show the standard of truth and accuracy acceptable to NARB. The summary also establishes guidelines of NARB acceptability concerning some of the more common and recurring problem areas of deceptive advertising. Some notation and comparison with federal regulation is made where appropriate. All of these parameters and guidelines are collapsed into a table at the end of the article. Research materials for this article are primarily drawn from NARB documents and the 35 panel decisions to date. They are supplemented with personal interviews and telephone conversations with staff members at NARB. Court decisions and FTC publications are used as well.
In this paper, we untangle the searchable and experiential dimensions of quality responses to entry by counterfeiters in emerging markets with weak intellectual property rights. Our theoretical framework analyzes the market equilibria under competition with non-deceptive counterfeiting and deceptive counterfeiting, respectively, as well as under monopoly branding. A key theoretical prediction is that emerging markets can be self-corrective with respect to counterfeiting issues in the following sense: First, counterfeiters could earn positive profits by pooling with authentic brands only when consumers have good faith in the market (believe in a low probability that any product is a counterfeit). When the proportion of counterfeits in the market exceeds a cutoff value, brands would invest in self-differentiation from the competitive fringe counterfeiters. Second, to attain a separating equilibrium with counterfeiters, branded incumbents upgrade the searchable quality (e.g. appearance) of their products more and improve the experiential quality (e.g. functionality) less, as compared to monopoly equilibrium. This prediction uncovers the nature of product differentiation in the searchable dimension and helps in analyzing the real-world innovation strategies employed by authentic firms in response to entries by counterfeit entities. In addition, the welfare analyses hint at a non-linear relationship between social welfare and intellectual property enforcement.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Deceptive advertising has been a key topic of advertising regulation research. However, the existing literature focuses primarily on the Western experience, and practices in developing countries have received little attention. As an initial effort to investigate the topic in the context of an emerging market, this article applies Petty and Kopp's framework to examine how China controls deceptive advertising from five aspects: initiation, interpretation, deception, verification, and remediation. The author discusses the contradictions in the Chinese system and explores implications for foreign firms operating in China.
The authors suggest that people strategically manage - specifically, lower - their expectations to increase future satisfaction. Consumers who are more disconfirmation sensitive, that is, those who are more satisfied (dissatisfied) when a product performs better (worse) than expected, are hypothesized to have lower expectations. In contrast, the authors expect that consumers who are perfectionists will have higher expectations than those who are not. Results from a laboratory experiment and a field study are consistent with the hypotheses. Furthermore, the authors identify a possible third type of expectation ("as-if") that serves as a basis for post-purchase evaluation and provide preliminary evidence that it differs from both will and should expectations.
Examines the relationship between four key post-purchase constructs: perceived performance, satisfaction, perceived value, and repurchase intentions, in a causal path framework in an empirical study of business-to-business professional services. Attempts to disaggregate performance into its component multiple dimensions, and assess the individual impact of each on post-purchase evaluation processes. Shows that the effect of perceived value on repurchase intentions is completely mediated through satisfaction. Confirms six performance dimensions, each having a significant impact on both value and satisfaction and adds new insight to our understanding of the respective roles of perceived value, satisfaction and post-purchase intentions.
Investigated in a longitudinal study the applicability of the disconfirmation model of consumer satisfaction/dissatisfaction of 243 restaurant customers. The basic model was also extended to test for a relationship between 2 types of disconfirmation. Results support the major hypothesis that satisfaction increases as positive disconfirmation increases (as performance exceeds expectations). (14 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
An assembler needs sets of components, each produced by a different supplier. To produce the components and assemble the final product, the firms involved need to construct their individual production capacities before observing the actual demand. The firms have an incentive scheme (contract) to induce a “proper” capacity build-up. The key parameters of the contract are the set of transfer prices the assembler pays each supplier for a unit of its component. We consider two game settings as to how the terms of the contract are determined. The first is one where the assembler sets the prices, and the second is for the suppliers to simultaneously select the prices each wants to charge for its component.
We first characterize the optimal capacity decision when the system is centralized, and then derive the decentralized equilibrium capacities under each of the two game settings. We show that the decentralized channel performances depend heavily on system structure/parameters. In particular, under the first setting, the performance improves as the assembler's share of the systemwide capacity cost increases and it is not affected by the number of suppliers in the system, while under the second setting, the performance degrades both in the assembler's share of capacity cost and in the number of suppliers. We show that the first setting dominates the second in terms of system performance if and only if the assembler's share of capacity cost is larger than the reciprocal of the number of firms involved.
This research investigates the antecedents and consequences of customer satisfaction. We develop a model to link explicitly the antecedents and consequences of satisfaction in a utility-oriented framework. We estimate and test the model against alternative hypotheses from the satisfaction literature. In the process, a unique database is analyzed: a nationally representative survey of 22,300 customers of a variety of major products and services in Sweden in 1989–1990. Several well-known experimental findings of satisfaction research are tested in a field setting of national scope. For example, we find that satisfaction is best specified as a function of perceived quality and “disconfirmation”—the extent to which perceived quality fails to match prepurchase expectations. Surprisingly, expectations do not directly affect satisfaction, as is often suggested in the satisfaction literature. In addition, we find quality which falls short of expectations has a greater impact on satisfaction and repurchase intentions than quality which exceeds expectations. Moreover, we find that disconfirmation is more likely to occur when quality is easy to evaluate. Finally, in terms of systematic variation across firms, we find the elasticity of repurchase intentions with respect to satisfaction to be lower for firms that provide high satisfaction. This implies a long-run reputation effect insulating firms which consistently provide high satisfaction.
In recent studies of channel competition, it has been found that channel intermediaries reduce the intensity of direct competition between manufacturers. The underlying channel structure in most studies consists of two manufacturers and two retailers each of whom sells only manufacturer's product exclusively. This paper adds to this growing literature of channel competition by analyzing a channel structure with two competing manufacturers and one intermediary (a common retailer) that sells manufacturers' products. Unlike some exclusive dealers or retail outlets of a manufacturer, however, a common retailer is often a powerful player in the market. This paper studies three noncooperative games of different power structures between the two manufacturers and the retailer, i.e., two Stackelberg and one Nash games. It is shown that some of the results depend critically on the form of the demand function. With a linear demand function, a manufacturer is better off by maintaining exclusive dealers while a retailer has an incentive to deal with several producers. All channel members as well as consumers are better off when no one dominates the market. The common retailer benefits more than the manufacturers do from a symmetric decrease in the manufacturing cost. As products are less differentiated, all channel members' prices and profits increase: a counterintuitive result. When the demand function is nonlinear, however, an exclusive dealer channel provides higher profits to all than a common retailer channel given a power structure. As products are more differentiated, a manufacturer's profit decreases when a common retailer is used, but increases when an exclusive dealer is used. These results underscore the importance of choosing a correct demand function for a channel decision.
Conventional economic growth actually measures throughput, not accumulated wealth, as conventional growth measurements do not take account of the short life of goods and the loss to the economy when they are discarded. This article argues that society should be seeking growth in the quality of goods and services. This change from quantity to quality is necessary because Western industrialised economies are already consuming beyond the planet's carrying capacity. To improve the quality of goods we need to change taxation, regulation and culture so it is financially and culturally attractive to make and possess high quality goods which have a long life, and to correspondingly phase out low quality products. This can be done by ensuring goods keep their value when secondhand, introducing legislation to ensure goods are repairable, and strengthening existing 'fit for purpose' legislation. This article builds on the work of McLaren, Bullock and Yousef and others.
Counterfeiting is a widely spread phenomenon and has seen rapid growth in recent years. In this paper, we adopt the standard
vertical differentiation model and allow consumers the choices of purchasing an authentic product, purchasing a counterfeit,
or not buying. We focus on how non-deceptive counterfeits, which consumers know at time of purchase that the products are
counterfeits with certainty, affect the price, market share and profitability of brand name products. We also consider the
strategies for brand name companies to fight counterfeiting. We compare different fighting strategies in a market with one
brand name product and its counterfeit, and derive equilibrium fighting strategies in a market with two competing brand name
products and a counterfeit under general conditions.
This article investigates the use of the salient belief technique for measuring deception and the effectiveness of corrective ads. The technique is applied to Listerine advertising, which has already been found deceptive by the courts. Comparisons between this technique and the normative belief technique yielded similar results except for source effects over time.