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Credence Goods and Fraudelent Experts


  • Winand Emons


This article is about a market for credence goods. With a credence good, consumers are never sure about the extent of the good they actually need. Therefore, sellers act as experts determining the customers' requirements. This information asymmetry between buyers and sellers obviously creates strong incentives for sellers to cheat on services. I analyze whether the market mechanism may induce nonfraudulent seller behavior. From the observation of market data such as prices, market shares, etc., consumers can infer the sellers' incentives. I show that market equilibria resulting in nonfraudulent behavior do indeed exist.

Suggested Citation

  • Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
  • Handle: RePEc:rje:randje:v:28:y:1997:i:spring:p:107-119

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    References listed on IDEAS

    1. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
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    8. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    9. Glenn Ellison, 1994. "Theories of Cartel Stability and the Joint Executive Committee," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 37-57, Spring.
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    11. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
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