Equilibrium analysis of unfair competition from shoddy goods
Equilibrium analysis of unfair competition from shoddy goods
Advances in e-commerce allow consumers to learn the truth about shoddy goods. This article develops an analytical framework for examining the competition between an honest manufacturer (the “truth-teller”) and a deceptive manufacturer (the “deceiver”). Our equilibrium analysis suggests that the deceiver is not always inclined to deceive and that the truth-teller is not necessarily harmed by deception. Depending on the parameter values, the deceptive behavior of a deceiver can lead to four types of outcomes vis-à-vis the truth-teller: win–win, win–lose, lose–win, and lose–lose. In particular, if the consumer response to deception is weak then the truth-teller always has an incentive to prevent the deceiver from excessively exaggerating its product quality by lowering his own production cost, which lessens the truth-teller’s deceiver-induced profit loss. Yet if the consumer response to deception is strong then the truth-teller can prevent the deceiver from even slightly exaggerating its product quality by raising his own production cost; however, he might not have sufficient incentive to do so because this strategy would reduce his profit. Counter-intuitively, if the consumer response to deception is weak, then both consumer surplus and social welfare will actually increase with the deceiver’s announced quality.
Consumer behavior, Equilibrium analysis, Shoddy goods, Unfair competition
1639-1652
Hu, Shu
750fbb1a-35cc-4939-98d7-f6f91a610d5e
Zhou, Qin
22cc3c1b-50f4-41e0-9c3e-8cdf183a022e
Wu, Tong
4df4990d-b1bd-4bb0-83ca-1342ffb33222
Hu, Shu
750fbb1a-35cc-4939-98d7-f6f91a610d5e
Zhou, Qin
22cc3c1b-50f4-41e0-9c3e-8cdf183a022e
Wu, Tong
4df4990d-b1bd-4bb0-83ca-1342ffb33222
Hu, Shu, Zhou, Qin and Wu, Tong
(2025)
Equilibrium analysis of unfair competition from shoddy goods.
IEEE Transactions on Engineering Management, 72, .
(doi:10.1109/tem.2025.3556454).
Abstract
Advances in e-commerce allow consumers to learn the truth about shoddy goods. This article develops an analytical framework for examining the competition between an honest manufacturer (the “truth-teller”) and a deceptive manufacturer (the “deceiver”). Our equilibrium analysis suggests that the deceiver is not always inclined to deceive and that the truth-teller is not necessarily harmed by deception. Depending on the parameter values, the deceptive behavior of a deceiver can lead to four types of outcomes vis-à-vis the truth-teller: win–win, win–lose, lose–win, and lose–lose. In particular, if the consumer response to deception is weak then the truth-teller always has an incentive to prevent the deceiver from excessively exaggerating its product quality by lowering his own production cost, which lessens the truth-teller’s deceiver-induced profit loss. Yet if the consumer response to deception is strong then the truth-teller can prevent the deceiver from even slightly exaggerating its product quality by raising his own production cost; however, he might not have sufficient incentive to do so because this strategy would reduce his profit. Counter-intuitively, if the consumer response to deception is weak, then both consumer surplus and social welfare will actually increase with the deceiver’s announced quality.
Text
TEM-25-0839_Proof_hi
- Accepted Manuscript
More information
e-pub ahead of print date: 31 March 2025
Keywords:
Consumer behavior, Equilibrium analysis, Shoddy goods, Unfair competition
Identifiers
Local EPrints ID: 501135
URI: http://eprints.soton.ac.uk/id/eprint/501135
ISSN: 0018-9391
PURE UUID: dc51e08e-08fb-428d-9fc6-603d844c4257
Catalogue record
Date deposited: 27 May 2025 16:41
Last modified: 28 May 2025 02:11
Export record
Altmetrics
Contributors
Author:
Shu Hu
Author:
Qin Zhou
Author:
Tong Wu
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics