Huck, S.; Tyran, J.R.; (2003) Reciprocity as a social multiplier: the case of experience goods. (ELSE Working Papers 65). ESRC Centre for Economic Learning and Social Evolution: London, UK.

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Abstract

Reciprocal customers may disproportionately improve the performance of markets for experience goods. Reciprocal customers reward (punish) firms for providing good (bad) quality by upholding (terminating) the customer relation. This may induce firms to provide good quality. Reciprocal customers can be social multipliers in two ways. First, reciprocal customers cause a positive externality for non-reciprocal customers, inducing them to also engage in customer relations. Second, reciprocity provides firms with additional incentives to provide good quality if customers have social ties among each other. Hence, reciprocity induces customer relations and makes social ties among customers e¤ective in mitigating market failure.

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