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Price competition and reputation in markets for experience goods: an experimental study


  • Steffen Huck
  • Gabriele K. Lünser
  • Jean-Robert Tyran


We experimentally examine the effects of price competition in markets for expe-rience goods where sellers can build up reputations for quality. We compare price competition to monopolistic markets and markets where prices are exogenously fixed (somewhere between the endogenous oligopoly and monopoly prices). While oligopolies benefit consumers regardless of whether prices are fixed or endoge-nously chosen, we find that price competition lowers efficiency as consumers pay too little attention to reputation for quality. This provides empirical support to recent models in behavioral industrial organization that assume that consumers may with increasing complexity of the market place focus on selected dimensions of products. We also find that consumers' attention to quality and, hence, provided quality drops when regulated prices are set at levels that are too low.
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Suggested Citation

  • Steffen Huck & Gabriele K. Lünser & Jean-Robert Tyran, 2016. "Price competition and reputation in markets for experience goods: an experimental study," RAND Journal of Economics, RAND Corporation, vol. 47(1), pages 99-117, February.
  • Handle: RePEc:bla:randje:v:47:y:2016:i:1:p:99-117

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    References listed on IDEAS

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    Cited by:

    1. Huck, Steffen & Lünser, Gabriele & Spitzer, Florian & Tyran, Jean-Robert, 2016. "Medical insurance and free choice of physician shape patient overtreatment: A laboratory experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PB), pages 78-105.
    2. Rudolf Kerschbamer & Daniel Neururer & Alexander Gruber, 2017. "Do the altruists lie less?," Working Papers 2017-18, Faculty of Economics and Statistics, University of Innsbruck, revised 09 Nov 2017.
    3. Pigors, Mark & Rockenbach, Bettina, 2016. "The competitive advantage of honesty," European Economic Review, Elsevier, vol. 89(C), pages 407-424.
    4. Vera Angelova & Tobias Regner, 2016. "Can a Bonus Overcome Moral Hazard? An Experiment on Voluntary Payments, Competition, and Reputation in Markets for Expert Services," SFB 649 Discussion Papers SFB649DP2016-027, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    5. repec:eee:jeborg:v:144:y:2017:i:c:p:121-132 is not listed on IDEAS
    6. Mimra, Wanda & Rasch, Alexander & Waibel, Christian, 2016. "Price competition and reputation in credence goods markets: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 100(C), pages 337-352.
    7. Balafoutas, Loukas & Beck, Adrian & Kerschbamer, Rudolf & Sutter, Matthias, 2015. "The hidden costs of tax evasion," Journal of Public Economics, Elsevier, vol. 129(C), pages 14-25.
    8. Michael Kurschilgen & Alexander Morell & Ori Weisel, 2016. "Internal conflict, market uniformity, and transparency in price competition between teams," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_18, Max Planck Institute for Research on Collective Goods.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General


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