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The Role of Quality in Service Markets Organized as Multi-Attribute Auctions

  • Elena Krasnokutskaya

    ()

    (Department of Economics, Johns Hopkins University)

  • Kyungchul Song

    ()

    (Department of Economics, University of British Columbia)

  • Xun Tang

    ()

    (Department of Economics, University of Pennsylvania)

Registered author(s):

    We develop an empirical methodology to study markets for services. These markets are typically organized as multi-attribute auctions in which buyers take into account seller's price as well as various characteristics, including quality. Our identification and estimation strategies exploit observed buyers' and sellers' decisions to recover the distribution of sellers' qualities, the distribution of seller's costs conditional on quality, and the distribution of buyers' tastes. Our empirical results from the on-line market for programming services confirm that quality plays an important role. We use our estimates to study the effect of licensing restrictions and to assess the loss of value from using standard rather than multi-attribute auctions as is common in public procurement.

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    File URL: http://economics.sas.upenn.edu/system/files/13-053.pdf
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    Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 13-053.

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    Length: 80 pages
    Date of creation: 10 Jun 2013
    Date of revision:
    Handle: RePEc:pen:papers:13-053
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    1. Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Research Reports 25164, University of Connecticut, Food Marketing Policy Center.
    2. Li, Tong & Perrigne, Isabelle & Vuong, Quang, 2000. "Conditionally independent private information in OCS wildcat auctions," Journal of Econometrics, Elsevier, vol. 98(1), pages 129-161, September.
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    5. Michael P. Keane & Kenneth I. Wolpin, 1995. "The career decisions of young men," Working Papers 559, Federal Reserve Bank of Minneapolis.
    6. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    7. Lee, Sokbae & Song, Kyungchul & Whang, Yoon-Jae, 2013. "Testing functional inequalities," Journal of Econometrics, Elsevier, vol. 172(1), pages 14-32.
    8. Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, 07.
    9. Gregory Lewis, 2011. "Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors," American Economic Review, American Economic Association, vol. 101(4), pages 1535-46, June.
    10. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 56-78, February.
    11. Marion, Justin, 2007. "Are bid preferences benign? The effect of small business subsidies in highway procurement auctions," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1591-1624, August.
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