The Signaling Study of Advance Selling Considering the Product Diffusion and Online Reviews Effect

Abstract

With the high-speed development of technology and increasingly fierce competition in the market, many retailers in industries such as computers, smart phones and fashion dress begin to widely adopt the advance selling mode for product selling. Unlike traditional single-stage spot sales mode, we consider a seller who can sell her product over two periods, advance and spot. The seller has private information about the product quality, which is unknown to customers in advance and publicly revealed in spot. The question we consider is which strategy the seller will choose to signal quality in advance and how she can convey a credible signal of product quality. The method that this paper used is signaling game model which is build between retailer and consumer under the influence of product diffusion effect and negative review effect. We find that the price and the e-commerce platform in the advance period are effective tools of signaling product quality. By exploring the problem above, we get some conclusions below: market equilibriums are decided by credibility of the e-commerce platform selected by the high quality product seller. The possibility of equilibrium implementation is affected by the quantity of consumer in pre-selling period, negative review effect coefficient, and the quality of low quality product which can be adjusted market to promote separation equilibrium and avoid confusion equilibrium.