Insight into China’s economically motivated adulteration risk in online agricultural product sales

Quality uncertainty and inspectors' imperfect testing capability leave agricultural products wide open to economically motivated adulteration (EMA), and online shopping demand for these products in China makes it even worse. We develop a game-theoretic framework to investigate online agricultural product sellers' EMA behavior on an e-commerce platform (EP). We characterize the sellers' equilibrium pricing and adulteration decisions and the EP's optimal take rate decision and analyze how the sampling inspections and adulteration penalty jointly impact these decisions. Moreover, we investigate three managerial levers to deter EMA: (i) penalizing EP's malpractice regarding food safety management, (ii) claiming a higher-than-law-requires adulteration penalty to consumers, and (iii) adopting the traceability systems to record reliable quality information. Finally, we use real-world data to calibrate our model and derive more managerial insights. We find that the quality-differentiated sellers' adulteration decisions are symmetric and their ex-post pricing decisions lead them to evenly share the market on the EP. We show that the EP's higher take rate can inhibit the sellers' adulteration behavior, however, it may indulge their such behavior by intentionally decreasing this rate. Our results highlight a penalty-inspection-centered approach as essential to combat EMA, and that it can be supplemented by the three levers.