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Markets for professional services: queues and mediocrity

  • Clara Ponsati
  • József Sákovics

    ()

We analyze a dynamic, decentralized market with endogenous entry, where in each period the active professionals supply one unit of an indivisible service at varying degrees of quality. The customers that have entered the market are randomly matched with the active professionals and prices are set by (complete information) pair-wise bargaining. In its unique steady state, the market leads to an excess diversity of quality and customers may have to suffer costly delays. Notably, efficiency is not regained as per period delay costs disappear. We also show that a professional college setting licensing rules will improve welfare (and even Consumer Surplus), relative to the free market, whenever the inefficiency is caused by a large enough excess supply.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 133.

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Length: 34
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:edn:esedps:133
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  1. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October.
  2. Shirley Svorny, 2004. "Licensing Doctors: Do Economists Agree?," Econ Journal Watch, Econ Journal Watch, vol. 1(2), pages 279-305, August.
  3. Steven J. Davis, 2001. "The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium," NBER Working Papers 8434, National Bureau of Economic Research, Inc.
  4. Max R. Blouin, 2003. "Equilibrium in a decentralized market with adverse selection," Economic Theory, Springer, vol. 22(2), pages 245-262, 09.
  5. Rachel E. Kranton, 2003. "Competition and the Incentive to Produce High Quality," Economica, London School of Economics and Political Science, vol. 70(279), pages 385-404, 08.
  6. Bester,Helmut, 1986. "Bargaining,Search costs and equilibrium price distribution," Discussion Paper Serie A 49, University of Bonn, Germany.
  7. Charles Wilson, 1980. "The Nature of Equilibrium in Markets with Adverse Selection," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 108-130, Spring.
  8. 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 1328-46, December.
  9. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-88, March.
  10. Shapiro, Carl, 1986. "Investment, Moral Hazard, and Occupational Licensing," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 843-62, October.
  11. JÕzsef SÂkovics & Clara PonsatÎ, 1998. "Rubinstein bargaining with two-sided outside options," Economic Theory, Springer, vol. 11(3), pages 667-672.
  12. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  13. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
  14. Max Blouin, 2001. "Equilibrium in a Decentralized Market with Adverse Selection," Cahiers de recherche CREFE / CREFE Working Papers 128, CREFE, Université du Québec à Montréal, revised Mar 2001.
  15. Morris M. Kleiner, 2000. "Occupational Licensing," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 189-202, Fall.
  16. Stiglitz, J E, 1979. "Equilibrium in Product Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 69(2), pages 339-45, May.
  17. Wilson, Charles A, 1979. "Equilibrium and Adverse Selection," American Economic Review, American Economic Association, vol. 69(2), pages 313-17, May.
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