Usefulness of Economics in Explaining Consumer Complaints

Despite a transparent connection between supply and demand of goods and services and consumer complaints, economists have lagged behind marketers in conceptualization and empirical estimation of complaint behavior of dissatisfied consumers, even though one of the early models of complaining behavior was developed by an economist (Hirschman 1970). Economic theory is a fruitful basis on which to examine complaint actions taken by dissatisfied consumers because it accommodates four categories of variables found to be important in explaining consumer complaint behavior and leads to demand functions with clearly identifiable parameters. This study estimates the probability of taking one of four complaint actions, based on a neoclassical economic model of the demand for consumer complaints. To a lesser degree, it also sheds light on industrial organization issues related to complaining behavior raised by Hirschman (1970), Andreasen (1985), Singh (1990b, 1991), and Kolodinsky (1993) by applying the model to a "more" competitive industry (auto repair) and a "less" competitive loose monopoly industry (medical care). REVIEW OF COMPLAINT LITERATURE Consumer complaint behavior has been the subject of much research in the fields of consumer behavior, marketing, and law.(1) Relative to the vast body of literature on complaining behavior, few economists have modelled and estimated complaining behavior (Fornell and Didow 1980; Fornell and Wernerfelt 1987; Hirschman 1970; Kolodinsky 1990, 1993; Kolodinsky and Aleong 1990; Laver 1976; Oster 1980). Hirschman's (1970) conceptualization asserts that decreases in quality of products and services and increases in consumer dissatisfaction occur in market structures other than perfect competition. In the competitive model, no barriers to entry exist, there are large numbers of buyers and sellers, each buyer or seller is small relative to the industry so any decision by an individual to increase purchase or output does not affect total demand and supply, sellers and buyers possess perfect information about available alternatives, and both buyers and sellers are price takers. Thus, if any seller decreases quality of goods or services for sale or attempts to raise the price, they lose all demand for their output. Dissatisfaction does not occur because all goods and services available for sale are of uniform quality and price. Conversely, in a monopoly situation, consumers can become dissatisfied if a seller "slacks" because there is no competition to keep quality in check. Consumers can remain loyal (take no action) and accept the consequences, exit (boycott the product or service), or voice their complaint: publicly to the seller or to a third party (legal redress, Better Business Bureau, etc.) or privately to friends or relatives. If the product or service is a necessity, the choice of exit becomes unlikely. Consumers dissatisfied with oligopolistic and monopolistic competitive markets have the same array of choices with some expansion. Using the exit option does not imply accepting the consequences of not having an alternative to a given product or service. Consumers have the added option of switching sellers. Support for the influence of industrial organization on complaining behavior has been found by Andreasen (1985), Singh (1991), and Kolodinsky (1993). Andreasen (1985) found that in a loose monopoly situation (medical services) consumers who felt they had more influence in medical decisions are more likely to switch physicians. Singh (1991) found that consumers are less likely to make public complaints and more likely to make private complaints about industries with characteristics of loose monopolies. Kolodinsky (1993) examined public complaint action, company response, and subsequent purchase in a loose monopoly (medical industry) and found that highly dissatisfied consumers and those more experienced with the industry (women and the elderly) are more likely to voice private complaints (switch providers) than to complain to the provider. …