Conflict resolution vs. conflict escalation in online markets

Gary Bolton (), Ben Greiner and Axel Ockenfels

No 2015-19, Discussion Papers from School of Economics, The University of New South Wales

Abstract: 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.

Keywords: conflict resolution system; market design; reputation; trust; reciprocity (search for similar items in EconPapers)
JEL-codes: C73 C9 D02 L14 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-09
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