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Credence goods markets and the informational value of new media: A natural field experiment

Author

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  • Rudolf Kerschbamer

    (University of Innsbruck)

  • Daniel Neururer

    (University of Innsbruck)

  • Matthias Sutter

    () (Max Planck Institute for Research on Collective Goods)

Abstract

Credence goods markets are characterized by pronounced informational asymmetries between consumers and expert sellers. As a consequence, consumers are often exploited and market efficiency is threatened. However, in the digital age, it has become easy and cheap for consumers to self-diagnose their needs using specialized webpages or to access other consumers’ reviews on social media platforms in search for trustworthy sellers. We present a natural field experiment that examines the causal effect of information acquisition from new media on the level of sellers’ price charges for computer repairs. We find that even a correct self-diagnosis of a consumer about the appropriate repair does not reduce prices, and that an incorrect diagnosis more than doubles them. Internet ratings of repair shops are a good predictor of prices. However, the predictive valued of reviews depends on whether they are judged as reliable or not. For reviews recommended by the platform Yelp we find that good ratings are associated with lower prices and bad ratings with higher prices, while non-recommended reviews have a clearly misleading effect, because non-recommended positive ratings increase the price.

Suggested Citation

  • Rudolf Kerschbamer & Daniel Neururer & Matthias Sutter, 2019. "Credence goods markets and the informational value of new media: A natural field experiment," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2019_03, Max Planck Institute for Research on Collective Goods.
  • Handle: RePEc:mpg:wpaper:2019_03
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    References listed on IDEAS

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    Cited by:

    1. Parampreet Christopher Bindra & Rudolf Kerschbamer & Daniel Neururer & Matthias Sutter, 2020. "Reveal it or conceal it: On the value of second opinions in a low-entry-barriers credence goods market," ECONtribute Discussion Papers Series 004, University of Bonn and University of Cologne, Germany.
    2. Yan Chen & Peter Cramton & John List & Axel Ockenfels, 2020. "Market Design, Human Behavior and Management," Artefactual Field Experiments 00685, The Field Experiments Website.
    3. Silvia Angerer & Daniela Glätzle-Rützler & ChristianWaibel, 2020. "Monitoring institutions in health care markets: Experimental evidence," Working Papers 2020-32, Faculty of Economics and Statistics, University of Innsbruck.

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    More about this item

    Keywords

    credence goods; fraud; information acquisition; internet; field experiment;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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