TY - JOUR
T1 - Reputation and Pricing Dynamics in Online Markets
AU - Ma, Qian
AU - Huang, Jianwei
AU - Basar, Tamer
AU - Liu, Ji
AU - Chen, Xudong
N1 - Funding Information:
This work was supported in part by the National Natural Science Foundation of China under Grant 62002399, in part by the Shenzhen Institute of Artificial Intelligence and Robotics for Society, and in part by the Presidential Fund from The Chinese University of Hong Kong, Shenzhen. An earlier version of this work was presented at the 11th Workshop on the Economics of Networks, Systems and Computation (NetEcon) (in conjunction with ACM SIGMETRICS 2016), Juan-les-Pins, France, June 2016, and appeared as a one-page summary [1] in its Proceedings.
Funding Information:
Manuscript received September 11, 2018; revised June 17, 2019 and May 9, 2020; accepted March 24, 2021; approved by IEEE/ACM TRANSACTIONS ON NETWORKING Editor M. Andrews. Date of publication April 22, 2021; date of current version August 18, 2021. This work was supported in part by the National Natural Science Foundation of China under Grant 62002399, in part by the Shenzhen Institute of Artificial Intelligence and Robotics for Society, and in part by the Presidential Fund from The Chinese University of Hong Kong, Shenzhen. An earlier version of this work was presented at the 11th Workshop on the Economics of Networks, Systems and Computation (NetEcon) (in conjunction with ACM SIGMETRICS 2016), Juan-les-Pins, France, June 2016, and appeared as a one-page summary [1] in its Proceedings. (Corresponding author: Jianwei Huang.) Qian Ma is with the School of Intelligent Systems Engineering, Sun Yat-sen University, Shenzhen 518107, China (e-mail: [email protected]).
Publisher Copyright:
© 1993-2012 IEEE.
PY - 2021/8
Y1 - 2021/8
N2 - We study the economic interactions among sellers and buyers in online markets. In such markets, buyers have limited information about the product quality, but can observe the sellers' reputations which depend on their past transaction histories and ratings from past buyers. Sellers compete in the same market through pricing, while considering the impact of their heterogeneous reputations. We consider sellers with limited as well as unlimited capacities, which correspond to different practical market scenarios. In the unlimited seller capacity scenario, buyers prefer the seller with the highest reputation-price ratio. If the gap between the highest and second highest seller reputation levels is large enough, then the highest reputation seller dominates the market as a monopoly. If sellers' reputation levels are relatively close to each other, then those sellers with relatively high reputations will survive at the equilibrium, while the remaining relatively low reputation sellers will get zero market share. In the limited seller capacity scenario, we further consider two different cases. If each seller can only serve one buyer, then it is possible for sellers to set their monopoly prices at the equilibrium while all sellers gain positive market shares; if each seller can serve multiple buyers, then it is possible for sellers to set maximum prices at the equilibrium. Simulation results show that the dynamics of reputations and prices in the longer-term interactions will converge to stable states, and the initial buyer ratings of the sellers play the critical role in determining sellers' reputations and prices at the stable state.
AB - We study the economic interactions among sellers and buyers in online markets. In such markets, buyers have limited information about the product quality, but can observe the sellers' reputations which depend on their past transaction histories and ratings from past buyers. Sellers compete in the same market through pricing, while considering the impact of their heterogeneous reputations. We consider sellers with limited as well as unlimited capacities, which correspond to different practical market scenarios. In the unlimited seller capacity scenario, buyers prefer the seller with the highest reputation-price ratio. If the gap between the highest and second highest seller reputation levels is large enough, then the highest reputation seller dominates the market as a monopoly. If sellers' reputation levels are relatively close to each other, then those sellers with relatively high reputations will survive at the equilibrium, while the remaining relatively low reputation sellers will get zero market share. In the limited seller capacity scenario, we further consider two different cases. If each seller can only serve one buyer, then it is possible for sellers to set their monopoly prices at the equilibrium while all sellers gain positive market shares; if each seller can serve multiple buyers, then it is possible for sellers to set maximum prices at the equilibrium. Simulation results show that the dynamics of reputations and prices in the longer-term interactions will converge to stable states, and the initial buyer ratings of the sellers play the critical role in determining sellers' reputations and prices at the stable state.
KW - Online markets
KW - competition
KW - dynamics
KW - pricing
KW - reputation
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U2 - 10.1109/TNET.2021.3071506
DO - 10.1109/TNET.2021.3071506
M3 - Article
AN - SCOPUS:85104572885
SN - 1063-6692
VL - 29
SP - 1745
EP - 1759
JO - IEEE/ACM Transactions on Networking
JF - IEEE/ACM Transactions on Networking
IS - 4
M1 - 9411678
ER -