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Becoming a bad doctor

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  • Szech, Nora
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    Abstract

    We analyze a market with n rational firms (doctors) and a continuum of boundedly rational consumers (patients). Following Spiegler (2006a), we assume that patients are not familiar with the market and rely on anecdotes. We analyze the price setting game played by doctors with given, different healing qualities. Doctors know their own quality, as well as the qualities of their competitors. In the unique equilibrium all doctors, no matter how bad, earn positive profits.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 80 (2011)
    Issue (Month): 1 ()
    Pages: 244-257

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    Handle: RePEc:eee:jeborg:v:80:y:2011:i:1:p:244-257

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    Web page: http://www.elsevier.com/locate/jebo

    Related research

    Keywords: Bounded rationality; S(1) procedure; Product differentiation; Price dispersion;

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    1. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
    2. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
    4. Becker, Johannes Gerd & Damianov, Damian S., 2006. "On the existence of symmetric mixed strategy equilibria," Economics Letters, Elsevier, vol. 90(1), pages 84-87, January.
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    6. Ellison, Glenn & Fudenberg, Drew, 1995. "Word-of-Mouth Communication and Social Learning," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 93-125, February.
    7. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
    8. Perloff, Jeffrey M & Salop, Steven, 1984. "Equilibrium with product differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
    9. Rabin, Matthew, 2000. "Inference by Believers in the Law of Small Numbers," Department of Economics, Working Paper Series qt4sw8n41t, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    10. Spiegler, Ran, 2010. ""But Can't we Get the Same Thing with a Standard Model?" Rationalizing Bounded-Rationality Models," MPRA Paper 21428, University Library of Munich, Germany.
    11. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
    12. Martin J. Osborne & Ariel Rubinstein, 1997. "Games with Procedurally Rational Players," Department of Economics Working Papers 1997-02, McMaster University.
    13. McAfee R. Preston, 1994. "Endogenous Availability, Cartels, and Merger in an Equilibrium Price Dispersion," Journal of Economic Theory, Elsevier, vol. 62(1), pages 24-47, February.
    14. Ariel Rubinstein & Rani Spiegler, 2005. "Money Pumps in the Market," Levine's Bibliography 122247000000000941, UCLA Department of Economics.
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