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Abstract: At the heart of economics is the belief that markets discipline firms for poor performance. However, in his famous book Exit, Voice, and Loyalty, Hirschman highlights an alternative mechanism that has received considerably less attention: voice. Hirschman argues that, rather than withdrawing demand from a firm, consumers may choose to communicate their dissatisfaction to the firm. In this paper, we develop a formal model of voice as the equilibrium of a relational contract between firms and consumers. Our model predicts that voice is more likely to emerge in concentrated markets, thus resolving a key source of ambiguity in Hirschman’s original formulation. Empirically, we estimate the relationship between quality, voice and market structure. Combining data on tweets about major U.S. airlines with data on airlines’ daily on-time performance and market structure, we document that the quantity of tweets increases in response to a deterioration in on-time performance and that this relationship is stronger when an airline operates a greater share of flights in a given market. In addition, we find that airlines are more likely to respond to tweets in these markets. Our findings indicate that voice is an important mechanism that consumers use to respond to quality deterioration and that its use varies increases with market concentration.
Paper: Exit, Tweets and Loyalty
[Keywords: exit voice and loyalty, complaints, airlines, Twitter, social media]