Platform Manipulation in Online Retail Marketplace with Sponsored Advertising

In this paper, we study an online retail marketplace’s incentive to manipulate sellers’ product attractiveness to consumers (e.g., through fake sales, fake reviews, or dishonest endorsement), as well as sellers’ placement ranking. We design a model of an online retail marketplace with a platform that manipulates sellers’ product attractiveness and sellers’ organic ranking order, and the sellers decide product prices and bid for sponsored advertising space on the platform. We find that the platform may manipulate an inferior seller’s product to appear more attractive to intensify sellers’ competition to bid for advertising and also manipulate a superior seller’s organic placement to either compensate or penalize the superior seller. We show that public policies, such as banning fake sales and fake reviews only by third-party sellers, may not necessarily eradicate manipulation on the platform if they ignore the platform’s incentive for manipulation in the first place.

History: Anthony Dukes served as the senior editor.

Supplemental Material: The online appendix is available at https://doi.org/10.1287/mksc.2023.1446.