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The Role of Quality in Service Markets Organized as Multi-Attribute Auctions

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  • Elena Krasnokutskaya

    ()
    (Department of Economics, Johns Hopkins University)

  • Kyungchul Song

    ()
    (Department of Economics, University of British Columbia)

  • Xun Tang

    ()
    (Department of Economics, University of Pennsylvania)

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    Abstract

    We develop an empirical methodology to study markets for services. These markets are typically organized as multi-attribute auctions in which buyers take into account seller's price as well as various characteristics, including quality. Our identification and estimation strategies exploit observed buyers' and sellers' decisions to recover the distribution of sellers' qualities, the distribution of seller's costs conditional on quality, and the distribution of buyers' tastes. Our empirical results from the on-line market for programming services confirm that quality plays an important role. We use our estimates to study the effect of licensing restrictions and to assess the loss of value from using standard rather than multi-attribute auctions as is common in public procurement.

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    Bibliographic Info

    Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 13-053.

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    Length: 80 pages
    Date of creation: 10 Jun 2013
    Date of revision:
    Handle: RePEc:pen:papers:13-053

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    Related research

    Keywords: quality; services; licensing; procurement; multi-attribute auctions; identification; unobserved heterogeneity; unobserved buyers'tastes; participation in auctions;

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    1. Gregory Lewis, 2011. "Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors," American Economic Review, American Economic Association, vol. 101(4), pages 1535-46, June.
    2. Nevo, Aviv, 1999. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Competition Policy Center, Working Paper Series qt7cm5p858, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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    7. Marion, Justin, 2007. "Are bid preferences benign? The effect of small business subsidies in highway procurement auctions," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1591-1624, August.
    8. Sokbae 'Simon' Lee & Kyungchul Song & Yoon-Jae Whang, 2011. "Testing functional inequalities," CeMMAP working papers CWP12/11, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    9. Pierre-André Chiappori & Bernard Salanié, 1997. "Testing for Asymmetric Information in Insurance Markets," Working Papers 97-11, Centre de Recherche en Economie et Statistique.
    10. Li, Tong & Perrigne, Isabelle & Vuong, Quang, 2000. "Conditionally independent private information in OCS wildcat auctions," Journal of Econometrics, Elsevier, vol. 98(1), pages 129-161, September.
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