Price Discrimination and Government Supervision Under Unreliable Consumer Oversight in the Context of the Platform Economy

ABSTRACT We consider an evolutionary game involving an e‐commerce platform (EP) and a government regulatory department (GRD), in which the EP determines whether to carry out price discrimination under unreliable consumer oversight and the GRD decides whether to monitor the EP taking into account the supervision cost. Analytical results reveal that, when consumer oversight is notably unreliable, or even when it is somewhat reliable but the conditions are not ripe for government supervision, price discrimination is inevitable. With the presence of consumer oversight, the GRD can deter the EP from engaging in price discrimination without incurring significant supervision costs, enjoying a “free ride” in maintaining market fairness. However, when the GRD's supervision cost are sufficiently low, or even if they are not low but consumer oversight remains highly unreliable, it becomes advantageous for the GRD to supervise the EP. Contrary to the prevailing notion that the GRD ought to vigorously enhance consumer oversight, our research indicates that augmenting the consumer oversight reliability may not always be in the GRD's best interest. Furthermore, as time progresses, bolstering the reliability of consumer oversight is instrumental in swiftly eradicating prevalent price discrimination, while diminishing the cost associated with supervision would facilitate the prompt initiation of government supervision.