Fake Reviews in Online Platforms and the Effort to Fight Them

This paper proposes a model in which oligopolistic firms selling through an online platform can invest in creating positive fake reviews to increase their reputation and negative ones to harm that of their competitors. Therefore, oligopolistic firms’ demand depends on the amount of positive and negative fake reviews. In this context, the online platform optimally chooses the effort to fight fake reviews and the fee it charges to online sellers for each transaction. The novelty of the model lies in incorporating the online platform’s role in fighting fake reviews and its interplay with sellers’ strategic behaviour. The model’s main result is that the platform’s effort has a positive impact not only on consumers’ surplus but also on the oligopolistic firms’ profitability. In its turn, the platform’s optimal effort depends on exogenous parameters, including the demand’s sensitivity to fake reviews. JEL Classifications: D21, D43, L13, L81