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The economics of professional services: lemon markets, credence goods, and C2C information sharing

Listed author(s):
  • Diego d’Andria

    ()

We discuss how professional service markets are plagued by asymmetric information, by looking jointly at the literature stemming from the seminal work of Akerlof on the “market of lemons”, and at the definition of “credence good” which has been developed especially within the field of health economics. Since consumers cannot evaluate ex post the quality of purchased professional services when these are “credence goods”, they cannot rely with 100 % confidence on other consumers’ and experts’ signals about service providers’ quality. Hence, questions arise on the effectiveness of traditional market features highlighted in literature as market-enhancing when information asymmetry is an issue, namely: advertising, certification, reputation, and liability. Our analysis specifically focuses on consumer-provided knowledge by looking at recent development of Web-based rating and reviewing services. Results point to the fact that consumers in the U.S. heavily rely on such services, and they do so roughly in proportion to their consumption of each professional sector. Therefore, future research on professional services should include a “C2C search technology” when modeling consumer behaviors that allows to define how much each professional service is to be considered as pure or hybrid “credence good.” Copyright Springer-Verlag 2013

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File URL: http://hdl.handle.net/10.1007/s11628-012-0143-0
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Article provided by Springer & Pan-Pacific Business Association in its journal Service Business.

Volume (Year): 7 (2013)
Issue (Month): 1 (March)
Pages: 1-15

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Handle: RePEc:spr:svcbiz:v:7:y:2013:i:1:p:1-15
DOI: 10.1007/s11628-012-0143-0
Contact details of provider: Web page: http://www.springer.com

Web page: http://www.panpacificbusiness.org/

Order Information: Web: http://www.springer.com/business/journal/11628

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  1. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
  2. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-1346, December.
  3. Robert B. Ekelund & Franklin G. Mixon & Rand W. Ressler, 1995. "Advertising and information: an empirical study of search, experience and credence goods," Journal of Economic Studies, Emerald Group Publishing, vol. 22(2), pages 33-43, May.
  4. Carl Shapiro, 1986. "Investment, Moral Hazard, and Occupational Licensing," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 843-862.
  5. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
  6. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
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