Quality Provision When Customers Get Angry
33 Pages Posted: 7 Oct 2012 Last revised: 11 Oct 2012
Date Written: December 11, 2011
There is overwhelming evidence that emotions are a significant determinant of consumer behavior. A customer may get angry if he feels that he is being treated unfairly by his supplier and that may make him more likely to switch to an alternative provider. We model the strategic interaction between firms that choose quality levels and anger-prone customers who pick their supplier based on their expectations of the supplier's quality. Strategic interaction can allow for multiple equilibria including some in which no firm invests in high quality even when it is socially desirable. Allowing customers to voice their anger on review fora such as tripadvisor.com can eliminate low-quality equilibria, and may even support a unique equilibrium in which all firms choose high quality.
Keywords: anger, customer attrition, quality
JEL Classification: D03, D11
Suggested Citation: Suggested Citation