Can the Conditional Rebate Strategy Work? Signaling Quality via Induced Online Reviews

Abstract

Online reviews are an important part of product information and have important effects on consumers’ purchasing decisions. Some sellers try to manipulate the market by inducing online reviews. In this study, a signal game model based on Bayesian conditional probability is constructed to analyze the preconditions, decision-making process, and effect on market demand and profit of this behavior. The results show that first, when consumer sensitivity to rebates reaches a certain threshold, low-quality sellers will adopt a conditional rebate strategy to induce consumers to give positive reviews. Second, the optimal rebate cost (β*) is obtained, where β* increases with the product price (p), but it is not necessarily monotonic in consumers’ sensitivity to rebates (ρ) or the proportion of high-quality products (α). Third, the conditional rebate strategy can only work in a market dominated by low-quality goods. Using the conditional rebate strategy in a market dominated by high-quality goods will not bring benefits to low-quality sellers but will harm their profits. This study proposes that some developing online markets have collusive behaviors owing to a lack of regulations and laws, as well as consumers’ concern for small interests. Ensuring the orderly development of online markets will require joint efforts by platform enterprises, government agencies, and consumers.

Keywords

• induced online review
• conditional rebate strategy
• online market
• quality signaling