Decentralizing Dispute Resolution in Two-Sided Platforms: The Case of Review Blackmail

34 Pages Posted: 14 Aug 2020 Last revised: 28 Aug 2020

See all articles by Yiangos Papanastasiou

Yiangos Papanastasiou

University of California, Berkeley - Haas School of Business

S. Alex Yang

London Business School

Angela Huyue Zhang

The University of Hong Kong - Faculty of Law

Date Written: July 7, 2020

Abstract

We study the relative merits of different dispute resolution mechanisms in two-sided platforms, in the context of disputes involving malicious reviews and blackmail. We develop a game-theoretic model of the strategic interactions between a seller firm and a (potentially malicious) consumer. In our model, the seller takes into account the impact of consumer reviews on his future earnings; recognizing this, a malicious consumer may attempt to blackmail the seller by purchasing the product, posting a negative review, and demanding ransom to remove it. Without a dispute resolution mechanism in place, the presence of malicious consumers in the market can lead to a significant decrease in firm profit, especially in settings characterized by high uncertainty about product quality. The introduction of a standard "centralized" dispute resolution mechanism (whereby the firm can report potentially malicious reviews to the host platform, which then judges whether to remove the review) can restore efficiency to some extent, but requires the platform's judgments to be both very quick and highly accurate. We demonstrate that an appropriately-designed "decentralized" mechanism (whereby the firm is allowed to remove reviews without consulting the platform, subject to ex post penalties for wrongdoing) can be much more effective, while simultaneously alleviating — almost entirely — the need for the platform's judgments to be quick. These results suggest that decentralization, when implemented correctly, may be a more efficient approach to dispute resolution.

Keywords: platform governance, dispute resolution, blackmail, decentralization, reviews, extortion

Suggested Citation

Papanastasiou, Yiangos and Yang, S. Alex and Zhang, Angela Huyue, Decentralizing Dispute Resolution in Two-Sided Platforms: The Case of Review Blackmail (July 7, 2020). University of Hong Kong Faculty of Law Research Paper No. 2020/043, Available at SSRN: https://ssrn.com/abstract=3644765 or http://dx.doi.org/10.2139/ssrn.3644765

Yiangos Papanastasiou (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

S. Alex Yang

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

HOME PAGE: http://faculty.london.edu/sayang/

Angela Huyue Zhang

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

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