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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:

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    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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