Sales volume and online reviews in a sequential game

In the age of e-commerce, consumers tend to base their purchasing decisions on online information, including the sales volume and the online reviews of products. To investigate the impact of such behaviour on firms’ competition strategy, we built a two-period model, which includes a leader firm that exists in the market for both periods and a follower firm that only enters the market in the second period. We consider three circumstances of online information: with no information, with sales volume information only, and with both sales volume and online reviews information. We show that when only sales volume information is available, the leader firm can always gain a competitive advantage over the follower firm in the second period. However, with the availability of both sales volume and online reviews, under certain conditions, the follower firm will be more competitive in the second period. Furthermore, neither sales volume information nor online reviews can guarantee the leader firm a higher profit.