Strategic Overcapacity in Live-Streaming Platform Selling

Problem definition: We analyze the contracting problem of a manufacturer who sells a product through an influencer on a live-streaming shopping platform. There are two types of influencers: regular and top. The regular influencer has less bargaining power and charges a per-unit commission. However, with more bargaining power, the top influencer can demand a fixed payment besides a per-unit commission. Contracting with either type of influencer, the manufacturer first decides the production capacity, which limits the sales volume during the live-streaming sales event. Then the influencer decides her commission and sales effort, and finally, the manufacturer sets the retail price. The influencer has an informational advantage about the product demand due to proximity to the customers and accessibility to the sales data of similar products. The manufacturer, without direct access to the demand information, tries to infer it from the commission and effort decisions of the influencer, which results in a signaling game. Methodology/Results: We build a game-theoretic model and show that when contracting with the regular influencer, the manufacturer may strategically install a strictly higher capacity than any demand to be realized to take advantage of the signaling effect at the cost of the system efficiency. By contrast, when contracting with the top influencer, the manufacturer no longer installs the strategic overcapacity, and the system efficiency improves to the detriment of the manufacturer's profit. Despite the efficiency improvement, there is still efficiency loss relative to the symmetric-information benchmark when contracting with the top influencer since she, when observing a low demand, has an incentive to mimic the one watching a high demand in the hope of earning a higher fixed payment. We propose a commission-plus-profit-sharing contract to mitigate the efficiency loss when contracting with either influencer type.Managerial implications: We show that manufacturers should not blindly pursue collaborations with top influencers. We also propose a commission-plus-profit-sharing contract that can help Pareto improve the profits of both the manufacturer and the top or regular influencer over those in the status-quo contracts.