Optimistic Third-Party Sellers in E-Commerce Supply Chains

This paper investigates the effects of optimism in an e-commerce supply chain where two third-party sellers offer substitutable products through a shared e-commerce platform. In this context, optimism is defined as a cognitive bias in which third-party sellers underestimate the probability of encountering low market potential. We present a game-theoretic model to characterize the equilibrium strategies of both the platform and the sellers. Our analysis reveals that when both sellers exhibit optimism bias, this bias invariably leads to lower expected profits for them. However, seller optimism can benefit both the platform and the whole system. That is, as sellers become more biased, the profits of the platform and the entire supply chain increase. Moreover, when a biased seller competes with a sophisticated one, unilateral optimism can result in a win-lose outcome in which the optimistic seller benefits from her bias at the expense of her sophisticated rival. Indeed, we demonstrate that optimism can confer a competitive advantage in a duopoly, allowing the more biased seller to earn higher profits than its less biased competitor-even if the latter is unbiased or sophisticated. Our work sheds light on the conditions under which optimism bias may have detrimental or beneficial impacts on e-commerce supply chain operations.