Maintaining vs. Milking Good Reputation when Customer Feedback is Inaccurate

B. Mir Djawadi, R. Fahr, C.-J. Haake, S. Recker, PLoS ONE 13 (2018).

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Journal Article | Published | English
Abstract
In Internet transactions, customers and service providers often interact once and anonymously. To prevent deceptive behavior a reputation system is particularly important to reduce information asymmetries about the quality of the offered product or service. In this study we examine the effectiveness of a reputation system to reduce information asymmetries when customers may make mistakes in judging the provided service quality. In our model, a service provider makes strategic quality choices and short-lived customers are asked to evaluate the observed quality by providing ratings to a reputation system. The customer is not able to always evaluate the service quality correctly and possibly submits an erroneous rating according to a predefined probability. Considering reputation profiles of the last three sales, within the theoretical model we derive that the service provider’s dichotomous quality decisions are independent of the reputation profile and depend only on the probabilities of receiving positive and negative ratings when providing low or high quality. Thus, a service provider optimally either maintains a good reputation or completely refrains from any reputation building process. However, when mapping our theoretical model to an experimental design we find that a significant share of subjects in the role of the service provider deviates from optimal behavior and chooses actions which are conditional on the current reputation profile. With respect to these individual quality choices we see that subjects use milking strategies which means that they exploit a good reputation. In particular, if the sales price is high, low quality is delivered until the price drops below a certain threshold, and then high quality is chosen until the price increases again.
Publishing Year
Journal Title
PLoS ONE
Volume
13
Issue
11
Article Number
e0207172
eISSN
Financial disclosure
Article Processing Charge funded by the Deutsche Forschungsgemeinschaft and the Open Access Publication Fund of LibreCat University.
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Mir Djawadi B, Fahr R, Haake C-J, Recker S. Maintaining vs. Milking Good Reputation when Customer Feedback is Inaccurate. PLoS ONE. 2018;13(11). doi:10.1371/journal.pone.0207172
Mir Djawadi, B., Fahr, R., Haake, C.-J., & Recker, S. (2018). Maintaining vs. Milking Good Reputation when Customer Feedback is Inaccurate. PLoS ONE, 13(11). https://doi.org/10.1371/journal.pone.0207172
@article{Mir Djawadi_Fahr_Haake_Recker_2018, title={Maintaining vs. Milking Good Reputation when Customer Feedback is Inaccurate}, volume={13}, DOI={10.1371/journal.pone.0207172}, number={11e0207172}, journal={PLoS ONE}, publisher={Public Library of Science}, author={Mir Djawadi, Behnud and Fahr, Rene and Haake, Claus-Jochen and Recker, Sonja}, year={2018} }
Mir Djawadi, Behnud, Rene Fahr, Claus-Jochen Haake, and Sonja Recker. “Maintaining vs. Milking Good Reputation When Customer Feedback Is Inaccurate.” PLoS ONE 13, no. 11 (2018). https://doi.org/10.1371/journal.pone.0207172.
B. Mir Djawadi, R. Fahr, C.-J. Haake, and S. Recker, “Maintaining vs. Milking Good Reputation when Customer Feedback is Inaccurate,” PLoS ONE, vol. 13, no. 11, 2018.
Mir Djawadi, Behnud, et al. “Maintaining vs. Milking Good Reputation When Customer Feedback Is Inaccurate.” PLoS ONE, vol. 13, no. 11, e0207172, Public Library of Science, 2018, doi:10.1371/journal.pone.0207172.
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