Consumer information in a market for expert services
AbstractWe present a model of credence goods in which the consumers are heterogenous in terms of the valuation they place for getting a serious problem fixed. We introduce consumer information into this framework by assuming that, prior to visiting an expert, some consumers receive an information signal about whether they have a serious or a minor problem. We show that when the fraction of consumers with low willingness to pay is sufficiently high, the expert does not cheat any low valuation consumer regardless of their information status, but cheats the high valuation consumers: those high-valuation consumers with bad signals are the most frequent victims of cheating, whereas those with good signals are the least likely victims. When the fraction of consumers with low willingness to pay is below a certain threshold, however, the unique equilibrium involves no cheating.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 80 (2011)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/jebo
Credence goods; Expert cheating; Consumer information;
Other versions of this item:
- Kyle Hyndman & Saltuk Ozerturk, 2008. "Consumer Information in a Market for Expert Services," Departmental Working Papers 0801, Southern Methodist University, Department of Economics.
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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