Billing Abuses by the Experts: A Game-Theoretic Analysis of Legal Services
AbstractBilling abuses exist when an expert charges the expert hourly rate but offers quality that does not match the charge. This paper provides a game-theoretic analysis so that, when the quality of an expert's services is unobservable to consumers before purchase, hourly rate competition can eliminate the profits necessary to induce the expert to offer the quality services. This paper further demonstrates that the threat of business termination by customers is not sufficiently credible to ensure that the experts will produce high quality services. Given the fact that billing abuses always exist, this paper suggests that auditing by the customers is necessary to reduce the overcharged amount, and customers have to audit a high percentage of the billed amount.
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Bibliographic InfoArticle provided by College of Business, Feng Chia University, Taiwan in its journal Journal of Economics and Management.
Volume (Year): 9 (2013)
Issue (Month): 1 (January)
asymmetric information; sub-game perfect equilibrium; credence service;
Find related papers by JEL classification:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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