Abstract: The present study develops a multi-agent communication model involving participation decisions to address customer complaint behaviour and the corresponding management policy. Privately informed customers choose among complaining, which is costly, keeping silent and exiting. A firm determines complaint barriers and decides whether to undertake corrective action. It is shown that customers truthfully complain only under a moderate complaint barrier. The observed low
complaint/dissatisfaction ratio and costly complaints arise as one equilibrium outcome. Customers’ expectations, the precision of signals and the temptation of outside options are identified as the determinants of complaint management policy. Firms are likely to set socially-excessive complaint barriers.
Key Words: Customer Complaint, Communication, Management
JEL Classification: D82, L51, M31
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Published in Pacific Economic Review, Vol. 18, No.2 (May.,2013) 177-207.