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Price competition between an expert and a non-expert

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  • Bouckaert, Jan
  • Degryse, Hans

Abstract

This paper characterizes price competition between an expert and a non-expert. In contrast with the expert, the non-expert’s repair technology is not always successful. Consumers visit the expert after experiencing an unsuccessful match at the non-expert. This re-entry affects the behaviour of both sellers. For low enough probability of successful repair at the non-expert, all consumers first visit the non-expert, and a ‘timid-pricing’ equilibrium results. If the non-expert’s repair technology performs well enough, it pays for some consumers to disregard the non-expert. They directly go to the expert’s shop, and an ‘aggressive-pricing’ equilibrium results. For intermediate values of the non-expert’s successful repair a ‘mixed-pricing’ equilibrium emerges where the expert randomizes over the monopoly price and some lower price.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 18 (2000)
Issue (Month): 6 (August)
Pages: 901-923

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Handle: RePEc:eee:indorg:v:18:y:2000:i:6:p:901-923

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Web page: http://www.elsevier.com/locate/inca/505551

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References

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  1. Kala Krishna, 1985. "Trade Restrictions as Facilitating Practices," NBER Working Papers 1546, National Bureau of Economic Research, Inc.
  2. Krugman, Paul R., 1989. "Industrial organization and international trade," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 20, pages 1179-1223 Elsevier.
  3. Che, Yeon-Koo, 1996. "Customer Return Policies for Experience Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 17-24, March.
  4. Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
  5. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  6. Ailsa Röell & Marco Pagano, 1991. "Auction and Dealership Markets: What is the Difference?," FMG Discussion Papers dp125, Financial Markets Group.
  7. Winand Emons, 1994. "Credence Goods and Fraudulent Experts," Diskussionsschriften dp9402, Universitaet Bern, Departement Volkswirtschaft.
  8. Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 1-19, March.
  9. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
  10. Rajiv Lal & Carmen Matutes, 1989. "Price Competition in Multimarket Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 516-537, Winter.
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Cited by:
  1. Dulleck, Uwe & Kerschbamer, Rudolf, 2005. "Experts vs Discounters: Competition and Market Unravelling When Consumers Do Not Know What they Need," CEPR Discussion Papers 5242, C.E.P.R. Discussion Papers.
  2. Kala Krishna & Tor Winston, 2000. "If at First You Don't Succeed...: Profits, Prices and Market Structure in a Model of Quality with Unknowable Consumer Heterogeneity," NBER Working Papers 7494, National Bureau of Economic Research, Inc.
  3. Alexandre Gaudeul, 2004. "Shareware competition: Selling an experience," Game Theory and Information 0409008, EconWPA.
  4. Paul De Grauwe & Laura Rinaldi, 2002. "A Model of the Card Payment System and the Interchange Fee," CESifo Working Paper Series 796, CESifo Group Munich.
  5. Uwe Dulleck & Rudolf Kerschbamer, 2005. "Experts vs. discounters: consumer free riding and experts withholding advice in markets for credence goods," Economics working papers 2005-09, Department of Economics, Johannes Kepler University Linz, Austria.
  6. Isabel GRILO & Xavier WAUTHY, 2000. "Price Competition when Product Quality is Uncertain," Discussion Papers (REL - Recherches Economiques de Louvain) 2000043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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