Improving Dispute Resolution in Two-Sided Platforms: The Case of Review Blackmail

39 Pages Posted: 14 Aug 2020 Last revised: 17 Apr 2021

See all articles by Yiangos Papanastasiou

Yiangos Papanastasiou

University of California, Berkeley - Haas School of Business

S. Alex Yang

London Business School

Angela Huyue Zhang

The University of Hong Kong - Faculty of Law

Date Written: April 10, 2021

Abstract

We study the relative merits of different dispute resolution mechanisms in two-sided platforms, in the context of disputes involving malicious reviews and blackmail. We develop a game-theoretic model of the strategic interactions between a seller and a (potentially malicious) consumer. In our model, the seller takes into account the impact of consumer reviews on his future earnings; recognizing this, a malicious consumer may attempt to blackmail the seller by purchasing the product, posting a negative review, and demanding ransom to remove it. Without a dispute resolution mechanism in place, the presence of malicious consumers in the market can lead to a significant decrease in seller profit, especially in settings characterized by high uncertainty about product quality. The introduction of a standard centralized dispute resolution mechanism (whereby the seller can report allegedly malicious reviews to the host platform, which then judges whether to remove the review) can restore efficiency to some extent, but requires the platform's judgments to be both very quick and highly accurate. We demonstrate that a more decentralized mechanism (whereby the firm is allowed to remove reviews without consulting the platform, subject to ex post penalties for wrongdoing) can be much more effective, while simultaneously alleviating---almost entirely---the need for the platform's judgments to be quick. Our results suggest that decentralization, when implemented correctly, may represent a more efficient approach to dispute resolution.

Keywords: platform governance, dispute resolution, blackmail, decentralization, review, extortion, blackmail

Suggested Citation

Papanastasiou, Yiangos and Yang, S. Alex and Zhang, Angela Huyue, Improving Dispute Resolution in Two-Sided Platforms: The Case of Review Blackmail (April 10, 2021). University of Hong Kong Faculty of Law Research Paper No. 2020/043, Available at SSRN: https://ssrn.com/abstract=3644765 or http://dx.doi.org/10.2139/ssrn.3644765

Yiangos Papanastasiou (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

S. Alex Yang

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

HOME PAGE: http://faculty.london.edu/sayang/

Angela Huyue Zhang

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://www.angelazhang.net

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