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Price Competition Between an Expert and a Non-Expert

Author

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  • Bouckaert, Jan
  • Degryse, Hans

Abstract

This paper characterizes price competition between an expert and a non-expert. In contrast with the expert, the non-expert’s repair technology is not always successful. Consumers visit the expert after experiencing an unsuccessful match at the non-expert. This re-entry affects the behaviour of both sellers. For low enough probability of successful repair at the non-expert, all consumers first visit the non-expert, and a ‘timid-pricing’ equilibrium results. If the non-expert’s repair technology performs well enough, it pays for some consumers to disregard the non-expert. They directly go to the expert’s shop, and an ‘aggressive-pricing’ equilibrium results. For intermediate values of the non-expert’s successful repair a ‘mixed-pricing’ equilibrium emerges where the expert randomizes over the monopoly price and some lower price.

Suggested Citation

  • Bouckaert, Jan & Degryse, Hans, 1998. "Price Competition Between an Expert and a Non-Expert," CEPR Discussion Papers 1905, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1905
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    References listed on IDEAS

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    1. Che, Yeon-Koo, 1996. "Customer Return Policies for Experience Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 17-24, March.
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    5. Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 1-19, March.
    6. 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.
    7. Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
    8. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
    9. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
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    Citations

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    Cited by:

    1. Dulleck, Uwe & Kerschbamer, Rudolf, 2009. "Experts vs. discounters: Consumer free-riding and experts withholding advice in markets for credence goods," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 15-23, January.
    2. Alexandre Gaudeul, 2004. "Shareware competition: Selling an experience," Game Theory and Information 0409008, EconWPA.
    3. Paul De Grauwe & Laura Rinaldi, 2002. "A Model of the Card Payment System and the Interchange Fee," CESifo Working Paper Series 796, CESifo Group Munich.
    4. Kala Krishna & Tor Winston, 2003. "If at First You Don't Succeed: Profits, Prices, and Market Structure in a Model of Quality with Unknowable Consumer Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 573-597, May.
    5. GRILO, Isabel & WAUTHY, Xavier, 2000. "Price competition when product quality is uncertain," CORE Discussion Papers RP 1509, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Dulleck, Uwe & Kerschbamer, Rudolf, 2005. "Experts vs Discounters: Competition and Market Unravelling When Consumers Do Not Know What they Need," CEPR Discussion Papers 5242, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    differentiation; Price Competition; Quality; re-entry;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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