IDEAS home Printed from
   My bibliography  Save this paper

Customers' Complaints and Quality Regulation


  • Nicollier, Luciana A.

    (Department of Economics, University of Warwick)


By studying a monopoly investment decision, this paper considers the informativeness of customers complaints in contexts characterised by the absence of direct benefits and free riding incentives. Neither the consumer nor the regulator observe the firm's investment, they only observe a realisation of quality that is related to investment in a first order stochastically dominance sense. After observing quality, consumers decide whether to complain based on the difference between the realised quality and a reference point defined by their rational expectations. If a high proportion of consumers complain, the regulator punishes the firm. The paper shows that the absence of a reference point results either in no complaints in equilibrium or in the proportion of complaints being independent of the realised level of quality. The main result is that complaints are not always informative about the level of quality being delivered by the firm. Indeed, a firm might be punished despite of investment levels being high if consumers expected high quality or, on the contrary, not being punished when investing is low if consumers expected low quality. Furthermore, this lack of informativeness can be worsened by a repeated interaction between the firm and the consumers. JEL classification: L12 ; L15 ; D42

Suggested Citation

  • Nicollier, Luciana A., 2012. "Customers' Complaints and Quality Regulation," The Warwick Economics Research Paper Series (TWERPS) 990, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:990

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Waterson, Michael & Doyle, Chris, 2010. "Your call: eBay and demand for the iPhone 4," The Warwick Economics Research Paper Series (TWERPS) 949, University of Warwick, Department of Economics.
    2. Paul Resnick & Richard Zeckhauser & John Swanson & Kate Lockwood, 2006. "The value of reputation on eBay: A controlled experiment," Experimental Economics, Springer;Economic Science Association, vol. 9(2), pages 79-101, June.
    3. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
    4. Silke J. Forbes, 2008. "THE EFFECT OF SERVICE QUALITY AND EXPECTATIONS ON CUSTOMER COMPLAINTS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(1), pages 190-213, March.
    5. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
    6. Stephen Coate & Michael Conlin, 2004. "A Group Rule–Utilitarian Approach to Voter Turnout: Theory and Evidence," American Economic Review, American Economic Association, vol. 94(5), pages 1476-1504, December.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Complaints ; Quality Regulation ; Reference Dependence;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wrk:warwec:990. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Margaret Nash). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.