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Recommendations in credence goods markets with horizontal product differentiation

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  • Momsen, Katharina

Abstract

I experimentally analyze whether the introduction of watchdogs and the revelation of sellers’ investment decisions can improve the market outcome in credence goods markets with horizontal product differentiation. Sellers can always give advice, yet they only observe consumers’ valuations if they invest. I find that in the absence of watchdogs and with concealed investment decisions, both prices and investment rates are low and sellers give selfish advice. Each measure alone is not sufficient to improve recommendations; only the joint introduction has a significant positive impact on both quality and frequency of recommendations, but leaves welfare unaffected.

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  • Momsen, Katharina, 2021. "Recommendations in credence goods markets with horizontal product differentiation," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 19-38.
    • Handle: RePEc:eee:jeborg:v:183:y:2021:i:c:p:19-38
    DOI: 10.1016/j.jebo.2020.12.018
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    Cited by:

    1. Katharina Momsen & Markus Ohndorf, 2022. "Seller Opportunism in Credence Good Markets – The Role of Market Conditions," Working Papers 2022-10, Faculty of Economics and Statistics, Universität Innsbruck.

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    More about this item

    Keywords

    Credence goods; Horizontal product differentiation; Costly investment; Unobservable investment; Advice; Price competition;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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