With the holidays fast upon us, it’s tempting to shop at online retail marketplaces for their product variety, customer reviews – along with that free shipping.

But my latest research introduces a whole new level of “buyer beware” by using game theory to analyze how online retail marketplaces such as Amazon pit sellers against each other to boost revenue, making it harder for consumers to identify the best product to buy.

These platforms provide so much convenience, but consumers can no longer count on rank order, reviews, and recommendations to reflect a product’s true popularity and quality. Surprisingly, platforms may choose to tolerate fake sales and fake reviews by sellers or even make a fake endorsement to manipulate product attractiveness. This not only hurts a consumer’s product choices but also may reduce a seller’s incentive to improve product. 

My co-author Fei Long and I recently published “Platform Manipulation in Online Retail Marketplace with Sponsored Advertising,” which looks at the economics of online marketplaces and platform bias, the effect of fake reviews as a promotion strategy, the quality of third-party certification, and sellers’ competitive strategies. It is the first research study to examine the interaction between a platform’s ranking design and its incentive to manipulate product attractiveness. It focused on Amazon but can be applied to other retail marketplaces.

We used game theory methodology to disentangle the complexity of the platform, separating it into the moves made by the company, seller and consumers. By using this theoretical model, we can clearly see who is causing the trouble and spot the manipulative tactics these platforms use:

1. ‘Amazon Choice’, fake reviews delude best seller rankings

   Amazon, for example, can charge sellers a premium for a top-ranked “Sponsored,” “Best Seller,” or “Amazon Choice” position, or buy blocks of favorable reviews to make an inferior product appear more attractive.

2. Sellers bid for top ranking, boosting platform profits

   Retail platforms are unlikely to change these practices on their own because they make more money by keeping them in place. For example, Amazon can charge one seller for a “Sponsored” slot, putting them in the number one position, and charge another for a “Recommended” position immediately below it. Those two sellers may then look for another advantage by lowering the price, which in turn drives sales—with Amazon pocketing anywhere from 8% to 15% in seller fees.

3. Beware of ‘brushing’ and ‘seeds of terror’
   
   China’s Taobao and Alibaba have long been accused of encouraging “brushing,” a deceitful technique that boosts a seller’s ratings by creating fake orders that are shipped to an accomplice or unsuspecting consumer in another country.

For example, a seller may create a fake order with a tracking number for an expensive product. The consumer will receive an inexpensive item instead, but the platform will show it as a sale. This boosts the seller’s volume and ranking. In 2020, one such scam that originated in China became known as the “seeds of terror” because it involved sending consumers around the world packages that were labeled as jewelry, but actually contained mustard, cabbage, and hibiscus seeds.

To date, US government oversight is focused primarily on the national data security of these platforms, particularly those that are based in China. Our research provides a roadmap for how public policy makers and lawmakers can expand their scope to address the welfare of the millions of buyers and sellers who use these retail platforms.

The solutions won’t be simple. Public policies such as simply banning fake sales and fake reviews by third-party sellers may not necessarily eradicate manipulation on the platform--especially if they ignore the platform’s incentive to do so in the first place.

The debate is becoming more intense, and people are paying more attention, but this issue needs more visibility with those who can effect change. In our next phase of the study, we’ll look at how these retail marketplaces are manipulating their platforms to promote their own brands.

Yunchuan (Frank) Liu, an associate professor of marketing at Gies College of Business at the University of Illinois Urbana-Champaign, specializes in researching pricing strategy, retailing and e-commerce. He co-authored the paper with Fei Long, assistant professor of marketing at University of North Carolina at Chapel Hill. It has been accepted by Marketing Science.