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A Theory of Fraud and Overtreatment in Experts Markets

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Author Info

  • Ingela Alger
  • François Salanié

Abstract

"Consumers often rely on an expert's diagnosis to assess their needs. If the expert is also the seller of services, he may use his informational advantage to induce overtreatment, which is a pervasive phenomenon in experts markets. We offer and discuss conditions leading to equilibrium overtreatment in an otherwise purely competitive model. This market failure results from consumers' ability to turn down an expert's recommendation: experts defraud consumers to keep them uninformed, as this deters them from seeking a better price elsewhere." Copyright 2006, The Author(s) Journal Compilation (c) 2006 Blackwell Publishing.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 15 (2006)
Issue (Month): 4 (December)
Pages: 853-881

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Handle: RePEc:bla:jemstr:v:15:y:2006:i:4:p:853-881

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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Cited by:
  1. Dominik Erharter, 2012. "Credence goods markets, distributional preferences and the role of institutions," Working Papers 2012-11, Faculty of Economics and Statistics, University of Innsbruck.
  2. Liu, Ting, 2006. "Credence Goods Markets with Conscientious and Selfish Experts," MPRA Paper 1106, University Library of Munich, Germany.
  3. Alexander Frankel & Michael Schwarz, 2009. "Experts and Their Records," NBER Working Papers 14921, National Bureau of Economic Research, Inc.
  4. Kerschbamer, Rudolf & Sutter, Matthias & Dulleck, Uwe, 2009. "The Impact of Distributional Preferences on (Experimental) Markets for Expert Services," IZA Discussion Papers 4647, Institute for the Study of Labor (IZA).
  5. Dulleck, Uwe & Kerschbamer, Rudolf & Konovalov, Alexander, 2014. "Too Much or Too Little? Price-Discrimination in a Market for Credence Goods," Working Papers in Economics 582, University of Gothenburg, Department of Economics, revised Apr 2014.

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