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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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    File URL: http://www.sciencedirect.com/science/article/pii/S0167268111000965
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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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    References

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    1. Ariel Rubinstein & Ran Spiegler, 2008. "Money Pumps in the Market," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 237-253, 03.
    2. 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.
    3. 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.
    4. Osborne, M-J & Rubinstein, A, 1997. "Games with Procedurally Rational Players," Papers 4-97, Tel Aviv.
    5. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    6. Paul R. Milgrom & John Roberts, 1985. "Relying on the Information of Interested Parties," Cowles Foundation Discussion Papers 749, Cowles Foundation for Research in Economics, Yale University.
    7. Matthew Rabin, 2002. "Inference By Believers In The Law Of Small Numbers," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 775-816, August.
    8. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
    9. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
    10. A. Banerjee & Drew Fudenberg, 2010. "Word-of-Mouth Communication and Social Learning," Levine's Working Paper Archive 425, David K. Levine.
    11. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Wiley Blackwell, vol. 73(4), pages 1113-1131, October.
    12. 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.
    13. 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.
    14. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
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