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Dispute Resolution or Escalation? The Strategic Gaming of Feedback Withdrawal Options in Online Markets

Author

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  • Gary Bolton

    (Department of Managerial Economics, Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080)

  • Ben Greiner

    (Institute for Markets and Strategy, Vienna University of Economics and Business, 1020 Vienna, Austria)

  • Axel Ockenfels

    (Department of Economics, University of Cologne, D-50923 Cologne, Germany)

Abstract

Many online markets encourage traders to make good after an unsatisfactory transaction by offering the opportunity to withdraw negative reputational feedback in a dispute resolution phase. Motivated by field evidence and guided by theoretical considerations, we use laboratory markets with two-sided moral hazard to show that this option, contrary to the intended purpose, produces an escalation of dispute. The mutual feedback withdrawal option creates an incentive to leave negative feedback, independent of the opponent’s behavior, to improve one’s bargaining position in the dispute resolution phase. This leads to distorted reputation information and less trust and trustworthiness in the trading phase. Buyers who refuse to give feedback strategically, even when it comes at a personal cost, mitigate the detrimental impact. It is also mitigated in markets with one-sided moral hazard and a unilateral feedback withdrawal option.

Suggested Citation

  • Gary Bolton & Ben Greiner & Axel Ockenfels, 2018. "Dispute Resolution or Escalation? The Strategic Gaming of Feedback Withdrawal Options in Online Markets," Management Science, INFORMS, vol. 64(9), pages 4009-4031, September.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:9:p:4009-4031
    DOI: 10.1287/mnsc.2017.2802
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    References listed on IDEAS

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    Cited by:

    1. Grodeck, Ben & Tausch, Franziska & Wang, Chengsi & Xiao, Erte, 2023. "To insure or not to insure? Promoting trust and cooperation with insurance advice in markets," European Economic Review, Elsevier, vol. 160(C).
    2. Gary Bolton & Kevin Breuer & Ben Greiner & Axel Ockenfels, 2023. "Fixing feedback revision rules in online markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 247-256, April.
    3. Dominik Gutt & Jürgen Neumann & Steffen Zimmermann & Dennis Kundisch & Jianqing Chen, 2018. "Design of Review Systems - A Strategic Instrument to shape Online Review Behavior and Economic Outcomes," Working Papers Dissertations 42, Paderborn University, Faculty of Business Administration and Economics.
    4. Yan Chen & Peter Cramton & John A. List & Axel Ockenfels, 2021. "Market Design, Human Behavior, and Management," Management Science, INFORMS, vol. 67(9), pages 5317-5348, September.
    5. Andreas J. Steur & Mischa Seiter, 2021. "Properties of feedback mechanisms on digital platforms: an exploratory study," Journal of Business Economics, Springer, vol. 91(4), pages 479-526, May.

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