In e-commerce, consumers and firms are concerned about the shown historical orders (SO, for short), since consumers make their purchase decisions depending on SO. Some firms may create fictitious transactions to inflate their orders, known as “brushing orders”. This work aims to analyze the incentive of firms’ strategical brushing behaviors in competition.
This paper established a two-period game theory based on a Hotelling model and derived the equilibrium solutions of a homogenous competition in three competition scenarios. Then, the strategic brushing equilibrium is derived based on the concept of dominant strategy analysis. Finally, the robustness of the findings is checked in a heterogenous competition.
The results indicate (1) when firms are homogenous, if the unit brushing cost is low or high, both firms brush; otherwise, both firms adopt mixed strategies to brush or not brush simultaneously; (2) if consumers are more concern about SO, firms set lower prices and get less profit; (3) when only one firm brushes, the non-brushing firm may capture more real orders than the brushing firm but get less profit and (4) if firms are highly differentiated, only the high-valued firm brushes when the unit brushing cost is low; otherwise, neither firm brushes. If firms are moderately differentiated, neither firm brushes; if the firms are low differentiated, only the low-valued firm brushes in a certain condition.
There are a number of limitations to our research. First, to focus on our research question, our model excludes some influencing factors, such as production cost, advertising and promotion. Second, we study the brushing incentives of two competitive firms, without considering the role of the e-commerce platform. Third, we did not consider the regulatory environment to study how to prevent brushing orders in competition.
This work provides managerial insights into firms’ brushing behaviors in competition. The findings can help the e-commerce regulatory authority to set appropriate policies to prevent and reduce brushing behaviors.
This work explains the incentive of firms’ brushing behavior in competition and shows the impact of brushing on firms’ pricing strategy in different competition scenarios.
