Exit and Voice: A Mechanism Design Approach (with Application to Customer Complaint Management)1

We develop a multiagent-principal model with voluntary participation to address information elicitation from self-selected experts (clients), and accommodate the salient facts in customer complaint management. The noisy informed clients choose among costly complain, keep silence, and exit, and the company decides the complaining barrier and whether to invest in corrective action. We study the Bayesian-Nash equilibrium of this game, and identify the optimal mechanism that su¤ers from multiple equilibrium and the suboptimal mechanism with unique equilibrium. It’s shown that the truthful announcement occurs only under moderate complaining barrier. The observed low complaint/dissatisfaction ratio may arise by discretion of company. Company’s reputation, the quality variant, and competition pressure are found out as the determinants of mechanism selection. Company, in particular low reputation one, would set socially excessive complaining barrier. Competition may not improve e¢ ciency in complaint management in the sense that suboptimal mechanism is more likely to be selected. We further investigate the manipulation of mechanism to induce e¢ cient equilibrium outcome in dynamic adjustment process. Key Words: Mechanism Design, Strategic Information Transmission, Customer Complaint, Competition, Defensive Marketing Strategy, JEL Classi…cation: C72, C73, D82, L15, L51, M31