UCL School of Management is delighted to welcome Avi Goldfarb, University of Toronto, to host a research seminar discussing ‘Exit, tweets and loyalty.’
At the heart of economics is the belief that markets discipline firms for poor performance. However, in his famous book Exit, Voice, and Loyalty, Albert 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 leverage social media data available on Twitter as a new way to measure voice by consumers to firms, and the responses by firms to consumers. 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. Thus, voice is an important mechanism that consumers use to respond to quality deterioration, particularly in more concentrated markets.