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Consumers and Experts: An Econometric Analysis of the Demand for Water Heaters

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  • Bartels, R.
  • Fiebig, D.G.
  • Soest, A.H.O. van

    (Tilburg University, Center for Economic Research)

Abstract

Consumers can accumulate product information on the basis of a combination of searching, product advertising and expert advice.Examples of experts who provide product information include doctors advising patients on treatments, motor mechanics diagnosing car problems and recommending repairs, accountants recommending investment strategies, and plumbers making recommendations on alternative water heaters.In each of these examples, the transactions involve the sale of goods and services where the seller is at the same time an expert providing advice on the amount and type of product or service to be purchased.In the case of water heaters, the plumber advising a consumer on their choice of water heater will most likely also install the appliance.Because of the information asymmetry there is potentially a strategic element in the transmission of information from expert to consumer.This paper reports on an econometric investigation of the factors that determine the choices made by consumers and the recommendations made by plumbers and the extent to which plumbers act in the best interests of their customers.The empirical work is made possible by the availability of stated preference data generated by designed experiments involving separate samples of Australian consumers and plumbers.We find some evidence that plumbers have higher preferences than consumers for heater characteristics that increase their profit margin.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2003-26.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:200326

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Web page: http://center.uvt.nl

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Keywords: consumers; demand; product information; advertising; investment; econometrics;

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References

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  1. Krishna, V. & Morgan, J., 1999. "A Model of Expertise," Papers 206, Princeton, Woodrow Wilson School - Public and International Affairs.
  2. Maria L. Loureiro & Jill J. McCluskey & Ron C. Mittelhammer, 2003. "Are Stated Preferences Good Predictors of Market Behavior?," Land Economics, University of Wisconsin Press, vol. 79(1), pages 44-45.
  3. David F. Layton & Gardner Brown, 2000. "Heterogeneous Preferences Regarding Global Climate Change," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 616-624, November.
  4. Spector, David, 2002. "Failure of communication despite close preferences," Economics Letters, Elsevier, vol. 74(3), pages 283-289, February.
  5. Rollin, Patricia & Beyea, Jan, 1985. "US appliance efficiency standards," Energy Policy, Elsevier, vol. 13(5), pages 425-436, October.
  6. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
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Cited by:
  1. Wasi, Nada & Carson, Richard T., 2013. "The influence of rebate programs on the demand for water heaters: The case of New South Wales," Energy Economics, Elsevier, vol. 40(C), pages 645-656.
  2. Jordan Louviere & Kenneth Train & Moshe Ben-Akiva & Chandra Bhat & David Brownstone & Trudy Cameron & Richard Carson & J. Deshazo & Denzil Fiebig & William Greene & David Hensher & Donald Waldman, 2005. "Recent Progress on Endogeneity in Choice Modeling," Marketing Letters, Springer, vol. 16(3), pages 255-265, December.
  3. Paleti, Rajesh & Bhat, Chandra R., 2013. "The composite marginal likelihood (CML) estimation of panel ordered-response models," Journal of choice modelling, Elsevier, vol. 7(C), pages 24-43.
  4. Jose Blandon & Spencer Henson & Towhidul Islam, 2009. "Marketing preferences of small-scale farmers in the context of new agrifood systems: a stated choice model," Agribusiness, John Wiley & Sons, Ltd., vol. 25(2), pages 251-267.
  5. Bhat, Chandra R., 2011. "The maximum approximate composite marginal likelihood (MACML) estimation of multinomial probit-based unordered response choice models," Transportation Research Part B: Methodological, Elsevier, vol. 45(7), pages 923-939, August.

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