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Search and competition in expert markets

Author

Listed:
  • Cao, Yiran
  • Chen, Yongmin
  • Ding, Yucheng
  • Zhang, Tianle

Abstract

We develop a model in which consumers sequentially search experts for recommendations and prices to treat a problem, and experts simultaneously compete in these two dimensions. Consumers have either zero or a positive search cost. In equilibrium, experts may "cheat" by recommending an unnecessary treatment with positive probabilities, prices follow distributions that depend on a consumer's problem type and the treatment, and consumers search with Bayesian belief updating about their problem types. Remarkably, as search cost decreases, both expert cheating and prices can increase stochastically. However, if search cost is sufficiently small, competition forces all experts to behave honestly.

Suggested Citation

  • Cao, Yiran & Chen, Yongmin & Ding, Yucheng & Zhang, Tianle, 2022. "Search and competition in expert markets," MPRA Paper 114170, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114170
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    search; experts; competition; credence good;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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