Angry customers, e-word-of-mouth and incentives for quality provision

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 anger 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 suppliers’ quality. Strategic interaction can allow for multiple equilibria including some in which no firm invests in high quality. Allowing customers to voice their anger on peer-review fora can eliminate low-quality equilibria, and may even support a unique equilibrium in which all firms choose high quality.

► Customers who experience poor quality may get angry and switch suppliers.
► We study firms that pick quality and anger-prone customers who pick supplier.
► We find an equilibrium where all firms pick low quality and customers do not switch.
► Customers’ ability to voice anger on review fora can eliminate low-quality equilibria.
► Growing e-word-of-mouth affects quality choices and market structure in long-run.