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Dysfunctional customer behavior (DCB) is costly and problematic for organizations. This research seeks to understand how DCB spreads and how businesses can effectively deal with it through employee intervention.

This research conducted a survey study and an experimental study to examine the proposed model.

Through two studies, we discovered that when an employee intervenes to stop DCB and is perceived as having high coping ability, observing customers learn from the employee’s action, resulting in reduced empathy toward the dysfunctional customer and diminished intentions to engage in DCB. Conversely, if they perceive the employee as having low coping ability, the intervention backfires, enhancing the observers’ empathy toward the dysfunctional customer and consequently leading them to engage in more DCB.

This research unveils an additional mechanism that explains the spread of DCB. It also contributes to the employee intervention literature by shedding light on when employee intervention can backfire. Further, our application of social learning theory along with the person-situation interaction literature offers a fresh perspective in explaining service exchanges.