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The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition

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Author Info

  • Dulleck, Uwe

    (Queensland University of Technology)

  • Rudolf, Kerschbamer

    (University of Innsbruck and CEPR)

  • Matthias, Sutter

    ()
    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market break-down. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that either liability or verifiability yields efficiency, we find that liability has a crucial, but verifiability only a minor effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated.

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File URL: http://hdl.handle.net/2077/19527
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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 348.

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Length: 66 pages
Date of creation: 02 Mar 2009
Date of revision:
Publication status: Forthcoming in American Economic Review.
Handle: RePEc:hhs:gunwpe:0348

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Related research

Keywords: Credence goods; Experiment; Liability; Verifiability; Reputation; Competition;

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References

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Citations

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Cited by:
  1. Kerschbamer, Rudolf & Sutter, Matthias & Dulleck, Uwe, 2009. "The Impact of Distributional Preferences on (Experimental) Markets for Expert Services," IZA Discussion Papers 4647, Institute for the Study of Labor (IZA).
  2. Loukas Balafoutas & Adrian Beck & Rudolf Kerschbamer & Matthias Sutter, 2011. "What Drives Taxi Drivers? A Field Experiment on Fraud in a Market for Credence Goods," CESifo Working Paper Series 3461, CESifo Group Munich.
  3. Beck, Adrian & Kerschbamer, Rudolf & Qiu, Jianying & Sutter, Matthias, 2010. "Guilt from Promise-Breaking and Trust in Markets for Expert Services – Theory and Experiment," Working Papers in Economics 436, University of Gothenburg, Department of Economics.
  4. Steffen Huck & Jidong Zhou, 2011. "Consumer Behavioural Biases in Competition: A Survey," Working Papers 11-16, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. Uwe Dulleck & Berthold U Wigger, 2012. "Expert Politicians, Electoral Control, and Fiscal Restraints," NCER Working Paper Series 79, National Centre for Econometric Research.

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