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

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  • Uwe Dulleck

    ()
    (QUT)

  • Rudolf Kerschbamer

    ()
    (University of Innsbruck)

  • Matthias Sutter

    ()
    (University of Innsbruck and University of Gothenburg)

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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Bibliographic Info

Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 42.

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Date of creation: 02 Mar 2009
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Handle: RePEc:qut:auncer:2009_55

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Cited by:
  1. Adrian Beck & Rudolf Kerschbamer & Jianying Qiu & Matthias Sutter, 2010. "Guilt from Promise-Breaking and Trust in Markets for Expert Services - Theory and Experiment," Working Papers 2010-06, Faculty of Economics and Statistics, University of Innsbruck.
  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," Working Papers 2011-11, Faculty of Economics and Statistics, University of Innsbruck.
  3. Rudolf Kerschbamer & Matthias Sutter & Uwe Dulleck, 2009. "The Impact of Distributional Preferences on (Experimental) Markets for Expert Services," Working Papers 2009-28, Faculty of Economics and Statistics, University of Innsbruck.
  4. Uwe Dulleck & Berthold U Wigger, 2012. "Expert Politicians, Electoral Control, and Fiscal Restraints," NCER Working Paper Series 79, National Centre for Econometric Research.
  5. 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.

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