Exit, Tweets, and Loyalty

82 Pages Posted: 24 Dec 2016 Last revised: 16 Apr 2017

See all articles by Joshua S. Gans

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Avi Goldfarb

University of Toronto - Rotman School of Management

Mara Lederman

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: March 15, 2017

Abstract

At the heart of economics is the belief that markets discipline firms for poor performance. However, in his famous book Exit, Voice, and Loyalty, Albert Hirschman highlights an alternative mechanism that has received considerably less attention: voice. Hirschman argues that, rather than withdrawing demand from a firm, consumers may choose to communicate their dissatisfaction to the firm. In this paper, we develop a formal model of voice as the equilibrium of a relational contract between firms and consumers. Our model predicts that voice is more likely to emerge in concentrated markets, thus resolving a key source of ambiguity in Hirschman’s original formulation. Empirically, we leverage social media data available on Twitter as a new way to measure voice by consumers to firms, and the responses by firms to consumers. Combining data on tweets about major U.S. airlines with data on airlines’ daily on-time performance and market structure, we document that the quantity of tweets increases in response to a deterioration in on-time performance and that this relationship is stronger when an airline operates a greater share of flights in a given market. In addition, we find that airlines are more likely to respond to tweets in these markets. Thus, voice is an important mechanism that consumers use to respond to quality deterioration, particularly in more concentrated markets.

Keywords: exit voice and loyalty, complaints, airlines, Twitter, social media

JEL Classification: L1, D4, L86

Suggested Citation

Gans, Joshua S. and Goldfarb, Avi and Lederman, Mara, Exit, Tweets, and Loyalty (March 15, 2017). Rotman School of Management Working Paper No. 2889388. Available at SSRN: https://ssrn.com/abstract=2889388 or http://dx.doi.org/10.2139/ssrn.2889388

Joshua S. Gans

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Avi Goldfarb (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8604 (Phone)
416-978-5433 (Fax)

Mara Lederman

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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