Electronic Thesis and Dissertation Repository

Thesis Format

Integrated Article

Degree

Doctor of Philosophy

Program

Business

Supervisor

Pun, Hubert

2nd Supervisor

Odegaard, Fredrik

Co-Supervisor

Abstract

I study the complexities of market dynamics through the lens of investigating counterfeit goods, online platforms' tipping policies, and probabilistic price promotions. This dissertation consists of three essays that examine the strategic interactions between companies and consumers, aiming to offer insights into solutions companies can make to both better protect consumers' rights and enhance their profits. In the first essay, I investigate the issue of counterfeits in online marketplaces, focusing on credence goods such as nutritional supplements whose quality is hard to ascertain. I analyze a two-stage competition between genuine sellers and counterfeiters. I show that counterfeiters may utilize fake reviews to deceive consumers, and that reducing the prevalence of fake reviews can be achieved by platforms emphasizing the product-dependency of badges, ultimately advocating for consumer protection regulations. In the second essay, I address the issue of “tip baiting” in online food delivery platforms, where some consumers may promise large tips before delivery for better service but reduce them post-delivery. Through a duopoly model, I investigate the effects of adjustable (or non-adjustable) tipping policies on platform profits, consumer behavior, and delivery performance. I discover that platforms favor adjustable tipping policies, which, while beneficial to them, disadvantage fair consumers and workers. This suggests a need for regulatory oversight to protect the rights of fair consumers and workers against the exploitative potential of the tip baiting practice. In the third essay, I explore the design of probabilistic price promotions in a competitive setting, where firms offer consumers the chance to pay a promotional price or the full price through a lottery. The study focuses on the “zero-price effect,” where free products are perceived to have higher intrinsic value. I establish that a simple lottery, wherein consumers either receive the product for free or are offered to pay the original list price, is more profitable than a complex lottery with many promotional prices.

Summary for Lay Audience

This thesis examines how some of the online shopping and services we use every day can be improved for everyone involved. First, I study the impacts of fake credence goods (e.g., health supplements) on consumer surplus. This issue is even more challenging when some sellers also acquire fake product reviews to mislead consumers and boost sales. I find that online platforms can combat fake reviews by, for instance, clearly highlighting that badges are product-dependent. I also study food delivery platforms’ optimal tipping policy and whether they should allow consumers to adjust the tips after delivery has been completed. While placing orders, it is common for customers to specify a tip in order to receive faster delivery. However, some consumers would abuse platforms’ tipping policy and intentionally renege on the tip they promised; a practice known as “tip baiting.” My research suggests that platforms would always prefer to allow consumers to ex post adjust tips, even in the presence of tip baiting behavior; however, such a generous tipping policy would hurt consumers and workers. Hence, I advocate that third-party regulators need to intervene to safeguard consumers’ and workers’ rights, as platforms may lack the incentive to do so beyond a certain point. Finally, I explore the optimal design of probabilistic promotions that give customers a chance to draw a lottery which determines the product price. I show that when properly designed, a simple lottery, where consumers either receive the product for free or are offered to pay the list price, is more profitable than a complex lottery with many promotional prices.

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