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Customer Anger and Incentives for Quality Provision

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Author Info

  • Anthony Heyes

    (University of Ottawa)

  • Sandeep Kapur

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

Emotions are a significant determinant of consumer behaviour. A customer may get angry if he feels that he is being treated unfairly by his supplier and that anger may make him more likely to switch to an alternative provider. We model the strategic interaction between firms that choose quality levels and anger-prone customers who pick their supplier based on their expectations of suppliers' quality. Strategic interaction can allow for multiple equilibria including some in which no firm invests in high quality. Allowing customers to voice their anger on peer-review fora can eliminate low-quality equilibria, and may even support a unique equilibrium in which all firms choose high quality.

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File URL: http://www.bbk.ac.uk/ems/research/wp/2012/PDFs/BWPEF1215.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 1215.

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Date of creation: Aug 2012
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Handle: RePEc:bbk:bbkefp:1215

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Keywords: anger; customer attrition; quality;

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  1. Julio J. Rotemberg, 2011. "Fair Pricing," Journal of the European Economic Association, European Economic Association, vol. 9(5), pages 952-981, October.
  2. Julio J. Rotemberg, 2008. "Behavioral Aspects of Price Setting, and Their Policy Implications," NBER Working Papers 13754, National Bureau of Economic Research, Inc.
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  6. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  7. Dellarocas, Chrysanthos, 2003. "The Digitization of Word-of-mouth: Promise and Challenges of Online Feedback Mechanisms," Working papers 4296-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  8. Gruen, Thomas W. & Osmonbekov, Talai & Czaplewski, Andrew J., 2006. "eWOM: The impact of customer-to-customer online know-how exchange on customer value and loyalty," Journal of Business Research, Elsevier, vol. 59(4), pages 449-456, April.
  9. Chrysanthos Dellarocas, 2003. "The Digitization of Word of Mouth: Promise and Challenges of Online Feedback Mechanisms," Management Science, INFORMS, vol. 49(10), pages 1407-1424, October.
  10. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
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