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

Gary Bolton (), Ben Greiner and Axel Ockenfels

Management Science, 2018, vol. 64, issue 9, 4009-4031

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.

Keywords: dispute resolution system; market design; reputation; trust; reciprocity (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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