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When Do Experts Cheat and Whom Do They Target?

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  • Yuk-fai Fong

    ()
    (Northwestern University)

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    Abstract

    A credence good is a product or service whose usefulness or necessity is better known to the seller than to the buyer. This information asymmetry often persists even after the credence good is consumed. I propose two new theories of expert cheating, suggesting that identifiable heterogeneities among customers can cause expert sellers to defraud their customers. According to these theories, cheating arises as a substitute for price discrimination, and experts cheat selectively. For instance, experts target high-valuation and high-cost customers. Finally, selective cheating may damage the communication of useful information from customers to experts and result in inferior services.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 36 (2005)
    Issue (Month): 1 (Spring)
    Pages: 113-130

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    Handle: RePEc:rje:randje:v:36:y:2005:1:p:113-130

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    Related research

    Keywords: Asymmetric and Private Information Search; Learning; Information and Knowledge Information and Product Quality; Standardization and Compatibility Information;

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    Cited by:
    1. Kyle Hyndman & Saltuk Ozerturk, 2008. "Consumer Information in a Market for Expert Services," Departmental Working Papers 0801, Southern Methodist University, Department of Economics.
    2. Andrew F. Daughety & Jennifer F. Reinganum, 2011. "Search, Bargaining, And Agency in the Market for Legal Services," Vanderbilt University Department of Economics Working Papers 1106, Vanderbilt University Department of Economics.
    3. Ting Liu, 2006. "Credence Goods Markets with Conscientious and Selfish Experts," Boston University - Department of Economics - Working Papers Series WP2006-058, Boston University - Department of Economics.
    4. Maarten Janssen & Alexei Parakhonyak, 2011. "Sårvice Refusal in Regulated Markets for Credence Goods," HSE Working papers WP BRP 08/EC/2011, National Research University Higher School of Economics.
    5. Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2011. "The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition," American Economic Review, American Economic Association, vol. 101(2), pages 526-55, April.
    6. Uwe Dulleck & Rudolf Kerschbamer & Alexander Konovalov, 2014. "Too much or too little? Price-discrimination in a market for credence goods," Working Papers 2014-13, Faculty of Economics and Statistics, University of Innsbruck.
    7. Silvia Martínez-Gorricho, 2014. "Information and consumer fraud in a signalling model," Working Papers. Serie AD 2014-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    8. 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.
    9. Raskovich, Alexander, 2007. "Retail buyer power through steering," Economics Letters, Elsevier, vol. 96(2), pages 221-225, August.
    10. Seung Lee, 2013. "Ethics and Expertise: A Social Networks Perspective," Journal of Business Ethics, Springer, vol. 118(3), pages 607-621, December.
    11. Dominik Erharter, 2012. "Credence goods markets, distributional preferences and the role of institutions," Working Papers 2012-11, Faculty of Economics and Statistics, University of Innsbruck.

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