Equilibrium Analysis of Unfair Competition from Shoddy Goods: The Role of Consumer Behavior

Equilibrium Analysis of Unfair Competition from Shoddy Goods: The Role of Consumer Behavior | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Equilibrium Analysis of Unfair Competition from Shoddy Goods: The Role of Consumer Behavior Shu Hu, Tong Wu This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-4488465/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 3 You are reading this latest preprint version Abstract Advances in e-commerce allow consumers to learn the truth about shoddy goods. This paper develops an analytical framework~-- for examining the competition between an honest manufacturer (the ''truth-teller'') and a deceptive manufacturer (the ''deceiver'') -- that incorporates three aspects of consumer behavior:\ perceived utility, negative word-of-mouth (WOM), and aversion. Our equilibrium analysis suggests that a truth-teller's lowered production cost can reduce deception-related losses by discouraging the deceiver from excessively improving its product quality; however, the truth-teller's own excessive improvement of product quality would actually benefit the deceiver when consumers (wrongly) perceive the deceiver's products to be of high quality. Finally, a truth-teller can deal with a deceiver's unfair competition by facilitating the dispersion of early-bird consumers' negative WOM and/or by increasing late-arriving consumers' aversion to deception beyond a certain threshold. Otherwise, the truth-teller should notice that increased dispersion and aversion will give the deceiver a free ride on his reduced production cost. In particular, if the consumer response to deception -- a combination of the dispersion of negative WOM and the aversion 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 production cost; then the truth-teller's deceiver-induced profit loss would be reduced. However, if the consumer response to deception is strong, though the truth-teller can completely prevent the deceiver from exaggerating its product quality by raising his own production cost, he might not have sufficient incentive to do so since this strategy would reduce his own profit. game theory unfair competition shoddy goods consumer behavior negative word-of-mouth Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Under Review Version 1 posted Editor assigned by journal 05 Jun, 2024 Submission checks completed at journal 03 Jun, 2024 First submitted to journal 28 May, 2024 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-4488465","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":310965403,"identity":"c41c0a84-dbd0-4ca4-9ec4-e66f68b9dd21","order_by":0,"name":"Shu Hu","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAAzUlEQVRIiWNgGAWjYBACAwYGNgaGCgYGxgYQl41oLWeAWtpI0gJWzkasFnOJ9GePeefVJTbP7zFg+FB2mIF/dgN+LZYzcsyNebcdTmxs4zFgnHHuMIPEnQMEHHYjh02ad9uBXJAWZt62wwwGEgmEtKQ/k+adUwfR8pc4LQlm0rwNzBAtjERpOfPGTHLOscP1jW1pBQd7zqXzSNwgpOV4+jOJNzV1xobNhzc++FFmLcc/g4AWODBsYGA4AKR5iFQPBPLEKx0Fo2AUjIKRBgAAxEDjuEs9BwAAAABJRU5ErkJggg==","orcid":"","institution":"Southwest Jiaotong University","correspondingAuthor":true,"prefix":"","firstName":"Shu","middleName":"","lastName":"Hu","suffix":""},{"id":310965404,"identity":"058d742f-961e-4eb7-bca8-dfa27a03cc07","order_by":1,"name":"Tong Wu","email":"","orcid":"","institution":"Sun Yat-sen University","correspondingAuthor":false,"prefix":"","firstName":"Tong","middleName":"","lastName":"Wu","suffix":""}],"badges":[],"createdAt":"2024-05-28 06:15:19","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-4488465/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-4488465/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":58326592,"identity":"73f024fa-779c-4fa2-ae20-32c7adf3943b","added_by":"auto","created_at":"2024-06-14 02:39:38","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":515723,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript0413.pdf","url":"https://assets-eu.researchsquare.com/files/rs-4488465/v1_covered_2bfb21c6-bb6e-4807-8a8c-6343daa9d23f.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Equilibrium Analysis of Unfair Competition from Shoddy Goods: The Role of Consumer Behavior","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"dynamic-games-and-applications","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"dgaa","sideBox":"Learn more about [Dynamic Games and Applications](http://link.springer.com/journal/13235)","snPcode":"13235","submissionUrl":"https://submission.nature.com/new-submission/13235/3","title":"Dynamic Games and Applications","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"em","reportingPortfolio":"Springer Hybrid","inReviewEnabled":true,"inReviewRevisionsEnabled":false},"keywords":"game theory, unfair competition, shoddy goods, consumer behavior, negative word-of-mouth","lastPublishedDoi":"10.21203/rs.3.rs-4488465/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-4488465/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"Advances in e-commerce allow consumers to learn the truth about shoddy goods. 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