Competition in Markets for Credence Goods
AbstractThis paper investigates the functioning of markets for credence goods. These are markets in which the information asymmetries are of the form that sellers are also experts who determine customers' needs. It examines the role of customers' search for multiple opinions in disciplining experts. It characterizes the equilibrium amount of fraud in such markets and shows that, despite intense competition, the information asymmetry will be translated into a mark-up over cost embodied in the prices of the less expensive services. It points out that the equilbrium does not maximize the expected customers' surplus, even subject to the informational constraints regarding the experts' superior information.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1099.
Date of creation: Jul 1994
Date of revision:
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Web page: http://www.kellogg.northwestern.edu/research/math/
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- Asher Wolinsky, 1991.
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959, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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CEPR Discussion Papers
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- Uwe Dulleck & Rudolf Kerschbamer, 2001. "On Doctors, Mechanics and Computer Specialists Or Where are the Problems with Credence Goods?," Vienna Economics Papers 0101, University of Vienna, Department of Economics.
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