The role of consumer behavior and power structures in coping with shoddy goods

Shu Hu, Ke Fu and Tong Wu

Transportation Research Part E: Logistics and Transportation Review, 2021, vol. 155, issue C

Abstract: This paper aims to understand the increasingly prevalent phenomenon of shoddy goods and help honest firms better cope with the unfair competition posed by shoddy goods producers. We develop a game-theoretic model to examine the interaction between an honest manufacturer of quality goods (the truth-teller) and an unscrupulous producer of shoddy goods (the deceiver). Three power structures are considered: with the truth-teller as leader, with the deceiver as leader, and with equal-power players. Our equilibrium analysis suggests that when consumers make only one-time purchase, the truth-teller is prone to suffer profit loss. Yet some power structures may help the truth-teller mitigate the risk of losing profit. Specifically, when the announced quality of the deceiver is low enough, the truth-teller-as-leader power structure reduces the truth-teller’s risk of profit loss; in contrast, when the announced quality of the deceiver is not low enough, the deceiver-as-leader power structure has a better mitigating effect; and the equal-power-player power structure always works worst. We also investigate the role of consumer repurchase behavior in fighting shoddy goods by extending the model to incorporate consumer dissatisfaction and repurchase frequency. A numerical study indicates that consumers’ quality expectation disconfirmation sensitivity can deter the deceiver from exaggerating its product quality – either when consumers’ repurchase frequency is high or when consumers repurchase at a medium frequency in a market led by the truth-teller. Our findings yield new theoretical insights for firms and industries seeking to combat shoddy goods.

Keywords: Shoddy goods; Power structures; Unfair competition; Game theory; Consumer behavior (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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DOI: 10.1016/j.tre.2021.102482

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