Three Essays on Market Dynamics: Counterfeits, Tipping Policies, and Probabilistic Promotions
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.