On Doctors, Mechanics and Computer Specialists. Or Where are the Problems with Credence Goods?
In recent years various contributions have analyzed the credence goods problem under a wide variety of assumptions yielding equilibria exhibiting various degrees of inefficiencies and fraud. The variety of results has fostered the impression that the equilibrium behaviour of experts and consumers in credence goods markets sensitively depends on the details of the models. The present Paper shows that the results for the majority of the specified models can be reproduced in a very simple unifying framework. Our model is constructed so that an efficient solution is reached if a small number of critical assumptions are satisfied, and virtually all existing results on inefficiencies in the credence good market are obtained by relaxing one of these conditions. Existing results are generalized, some previous interpretations of the forces leading to the striking differences in outcomes are questioned, and a new source for inefficiencies is identified.
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References listed on IDEAS
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- Wolfgang Pesendorfer & Asher Wolinsky, 1998.
"Second Opinions and Price Competition Inefficiency in the Market for Expert Advice,"
1229, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Wolfgang Pesendorfer & Asher Wolinsky, 2003. "Second Opinions and Price Competition: Inefficiency in the Market for Expert Advice," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 417-437.
- W. Pesendorfer & A. Wolinsky, 2000. "Second Opinions and Price Competition: Inefficiency in the Market for Expert Advice," Princeton Economic Theory Papers 00s18, Economics Department, Princeton University.
- Wolfgang Pesendorfer & Asher Wolinsky, 2000. "Second Opinions and Price Competition: Inefficiency in the Market for Expert Advice," Discussion Papers 1306, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Winand Emons, 1995.
"Credence Goods Monopolists,"
dp9501, Universitaet Bern, Departement Volkswirtschaft.
- Emons, Winand, 1997. "Credence Goods Monopolists," Berkeley Olin Program in Law & Economics, Working Paper Series qt9c5508x4, Berkeley Olin Program in Law & Economics.
- Asher Wolinsky, 1991.
"Competition in a Market for Informed Experts' Services,"
959, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- 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.
- 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.
- 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.
- Asher Wolinsky, 1994. "Competition in Markets for Credence Goods," Discussion Papers 1099, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Carolyn Pitchik & Andrew Schotter, 1993. "Information Transmission in Regulated Markets," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 815-29, November.
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