Despite the increasing use of gamification mechanics to engage customers in firms’ activities, the risks related to such use remain unclear. To address this knowledge gap, this research examines the impacts of losing a challenge, which is a phenomenon experienced by the majority of customers involved in gamified settings but underexplored in literature. We investigate the context of co-creation communities by combining two widely used gamification mechanics, competition and cooperation. Results from three laboratory experiments and one field experiment show that win/lose decisions weaken the benefits of gamification and, in the case of losing a competition, have negative impacts on customer experience and engagement. They also demonstrate that customers’ levels of prior engagement with the community moderate the negative impacts of losing a competition. Supported by equity theory, this research questions the effectiveness of gamification mechanics, identifies their limits, and provides guidelines on how to properly implement them.
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