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Conflict resolution vs. conflict escalation in online markets

Listed author(s):
  • Gary Bolton

    ()

  • Ben Greiner

    ()

  • Axel ockenfels

Many online markets encourage traders to make good after an unsatisfactory transaction by offering the opportunity of withdrawing negative reputational feedback in a conflict 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 conflict in the form of strategically distorted reputation information and less trust and trustworthiness in the trading phase. The detrimental impact is mitigated by buyers who refuse to give feedback strategically, even when it comes at a cost to themselves. It is also mitigated in markets with one-sided moral hazard.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2015-19.pdf
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2015-19.

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Length: 41 pages
Date of creation: Sep 2015
Handle: RePEc:swe:wpaper:2015-19
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Web page: http://www.economics.unsw.edu.au/
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  1. Amy Farmer, 2007. "Bargaining over an Uncertain Value: Arbitration Mechanisms Compared," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(3), pages 547-579, October.
  2. Uri Gneezy, 2005. "Deception: The Role of Consequences," American Economic Review, American Economic Association, vol. 95(1), pages 384-394, March.
  3. Bohnet, Iris & Zeckhauser, Richard, 2004. "Trust, risk and betrayal," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 467-484, December.
  4. Bolton, Gary E. & Katok, Elena, 1998. "Reinterpreting Arbitration's Narcotic Effect: An Experimental Study of Learning in Repeated Bargaining," Games and Economic Behavior, Elsevier, vol. 25(1), pages 1-33, October.
  5. Gary Bolton & Ben Greiner & Axel Ockenfels, 2013. "Engineering Trust: Reciprocity in the Production of Reputation Information," Management Science, INFORMS, vol. 59(2), pages 265-285, January.
  6. Iris Bohnet & Steffen Huck, 2004. "Repetition and Reputation: Implications for Trust and Trustworthiness When Institutions Change," American Economic Review, American Economic Association, vol. 94(2), pages 362-366, May.
  7. Attila Ambrus & Ben Greiner, 2012. "Imperfect Public Monitoring with Costly Punishment: An Experimental Study," American Economic Review, American Economic Association, vol. 102(7), pages 3317-3332, December.
  8. Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
  9. M.A. Nowak & K. Sigmund, 1998. "Evolution of Indirect Reciprocity by Image Scoring/ The Dynamics of Indirect Reciprocity," Working Papers ir98040, International Institute for Applied Systems Analysis.
  10. Bolton, Gary E. & Ockenfels, Axel & Ebeling, Felix, 2011. "Information value and externalities in reputation building," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 23-33, January.
  11. Jeffrey A. Livingston, 2005. "How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 453-465, August.
  12. Chrysanthos Dellarocas & Charles A. Wood, 2008. "The Sound of Silence in Online Feedback: Estimating Trading Risks in the Presence of Reporting Bias," Management Science, INFORMS, vol. 54(3), pages 460-476, March.
  13. Gneezy, Uri & Rockenbach, Bettina & Serra-Garcia, Marta, 2013. "Measuring lying aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 293-300.
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