Oligopoly Competition with Reputation Manipulation

Oligopoly Competition with Reputation Manipulation (2026.2)

YASUI Yuta (School of Economics and Management, Kochi University of Technology and Visiting Researcher of the Competition Policy Research Center)
YOSHIMOTO Hisayuki (Business School, University of Glasgow and Visiting Researcher of the Competition Policy Research Center)

Abstract

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How does hidden review manipulation alter oligopoly market outcomes? We model strategic manipulation of reputations in price and quantity competitions. Each firm has private information about its product quality, which consumers need to infer before purchasing. Consumers observe a noisy review rating for each firm, which is the combination of authentic and manipulated (fake) reviews, and is thus the subject of strategic manipulation. A firm’s review manipulation action, though costly, could inflate the rating of its product, increase consumers’ willingness to pay, and upwardly shift the firm’s demand function. By focusing on a linear strategy with private information, we establish a monotone equilibrium review manipulation strategy. When consumers rationally conjecture review manipulation, we show that expected prices and quantities become invariant to a non-manipulation environment, and severe competition diminishes the amount of manipulated reviews. Furthermore, due to the signaling role of manipulated reviews, expected consumer surplus increases. By contrast, when consumers naively believe observed ratings are genuine, strategic substitutability emerges among firms’ review manipulation actions, and equilibrium oligopoly market outcomes are distorted accordingly. With naive consumers, severe competition can increase the amount of manipulated reviews and damage consumer surplus.

CPDP-103-E(1,075 KB)