This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Market for Quacks

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
RAN SPIEGLER

Additional information is available for the following registered author(s):

Abstract

A group of "n""quacks" plays a price-competition game, facing a continuum of "patients" who recover with probability "α", whether they acquire a quack's "treatment". If patients chose rationally, the market would be inactive. I assume, however, that patients choose according to a boundedly rational procedure, which reflects "anecdotal" reasoning. This element of bounded rationality has significant implications. The market for quacks is active, and patients suffer a welfare loss which behaves non-monotonically w.r.t. "n" and "α". In an extended model that endogenizes the quacks' choice of "treatments", the quacks minimize the force of price competition by offering maximally differentiated treatments. The patients' welfare loss is robust to market interventions, which would crowd out low-quality firms in standard models. Thus, as long as the patients' quality of reasoning is not lifted above the anecdotal level, ordinary competition policies may be ineffective. Copyright 2006 The Review of Economic Studies Limited.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-937X.2006.00410.x
File Format: text/html
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 73 (2006)
Issue (Month): 4 (October)
Pages: 1113-1131
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:bla:restud:v:73:y:2006:i:4:p:1113-1131

Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=0034-6527

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kfir Eliaz & Ran Spiegler, 2004. "Contracting with Diversely Naïve Agents," Levine's Bibliography 122247000000000530, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Reynald-Alexandre Laurent, 2007. "Probalilistic duopoly with differentiation by attributes," PSE Working Papers 2007-27, PSE (Ecole normale supérieure). [Downloadable!]
  3. Ariel Rubinstein & Rani Spiegler, 2005. "Money Pumps in the Market," Levine's Bibliography 122247000000000941, UCLA Department of Economics. [Downloadable!]
  4. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2008. "Learning in the Credit Card Market," NBER Working Papers 13822, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Chen, Yongmin & Zhang, Tianle, 2009. "Equilibrium price dispersion with heterogeneous searchers," MPRA Paper 16490, University Library of Munich, Germany, revised 19 Nov 2009. [Downloadable!]
  6. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics. [Downloadable!]
  7. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," NBER Working Papers 13191, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Nava Ashraf & James Berry & Jesse M. Shapiro, 2007. "Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia," NBER Working Papers 13247, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Statistics
Access and download statistics

Did you know? You may want to explore EconPapers, which displays the same data as IDEAS in a different way.

This page was last updated on 2009-11-22.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.