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What drives fraud in a credence goods market? Evidence from a field study

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  • Rasch, Alexander
  • Waibel, Christian

Abstract

This paper investigates the impact of four key economic variables on an expert firm's incentive to defraud its customers in a credence goods market: the level of competition, the expert firm's financial situation, its competence, and its reputational concerns. We use and complement the dataset of a nationwide field study conducted by the German Automobile Association that regularly checks the reliability of garages in Germany. We find that more intense competition and high competence lower a firm's incentive to overcharge. A low concern for reputation and a critical financial situation increase the incentive to overcharge.

Suggested Citation

  • Rasch, Alexander & Waibel, Christian, 2015. "What drives fraud in a credence goods market? Evidence from a field study," DICE Discussion Papers 180, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:180
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    References listed on IDEAS

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    Cited by:

    1. Balafoutas, Loukas & Kerschbamer, Rudolf, 2020. "Credence goods in the literature: What the past fifteen years have taught us about fraud, incentives, and the role of institutions," Journal of Behavioral and Experimental Finance, Elsevier, vol. 26(C).
    2. Balafoutas, Loukas & Fornwagner, Helena & Kerschbamer, Rudolf & Sutter, Matthias & Tverdostup, Maryna, 2020. "Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets," IZA Discussion Papers 13848, Institute of Labor Economics (IZA).
    3. Chloe Tergiman & Marie Claire Villeval, 2023. "The Way People Lie in Markets: Detectable vs. Deniable Lies," Management Science, INFORMS, vol. 69(6), pages 3340-3357, June.
    4. Ahlin, Christian & Kim, In Kyung & Kim, Kyoo il, 2021. "Who commits fraud? evidence from korean gas stations," International Journal of Industrial Organization, Elsevier, vol. 76(C).
    5. Silvia Angerer & Daniela Glätzle-Rützler & Christian Waibel, 2021. "Trust in health care credence goods: Experimental evidence on framing and subject pool effects," Working Papers 2021-13, Faculty of Economics and Statistics, Universität Innsbruck.
    6. Utgård, Jakob & Nygaard, Arne & Dahlstrom, Robert, 2015. "Franchising, local market characteristics and alcohol sales to minors," Journal of Business Research, Elsevier, vol. 68(10), pages 2117-2124.
    7. Iman Ahmadi, 2023. "Face/Off: The adverse effects of increased competition," Quantitative Marketing and Economics (QME), Springer, vol. 21(2), pages 183-279, June.
    8. Silvia Angerer & Daniela Glätzle-Rützler & ChristianWaibel, 2020. "Monitoring institutions in health care markets: Experimental evidence," Working Papers 2020-32, Faculty of Economics and Statistics, Universität Innsbruck.
    9. Kandul, Serhiy & Lanz, Bruno & Reins, Evert, 2023. "Reciprocity and gift exchange in markets for credence goods," Games and Economic Behavior, Elsevier, vol. 141(C), pages 52-69.
    10. Chloe Tergiman & Marie Claire Villeval, 2019. "The Way People Lie in Markets," Working Papers halshs-02292040, HAL.
    11. Vera Angelova & Tobias Regner, 2016. "Can a Bonus Overcome Moral Hazard? An Experiment on Voluntary Payments, Competition, and Reputation in Markets for Expert Services," SFB 649 Discussion Papers SFB649DP2016-027, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    12. Theodore Alysandratos & Sotiris Georganas & Matthias Sutter, 2022. "Reputation vs Selection Effects in Markets with Informational Asymmetries," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2022_08, Max Planck Institute for Research on Collective Goods.
    13. Razi Farukh & Anna Kerkhof & Jonas Loebbing, 2020. "Inefficiency and Regulation in Credence Goods Markets with Altruistic Experts," Working Paper Series in Economics 102, University of Cologne, Department of Economics.
    14. Bruno Lanz and Evert Reins, 2021. "Asymmetric Information on the Market for Energy Efficiency: Insights from the Credence Goods Literature," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    15. Céline Bonnet & Jan Philip Schain, 2020. "An Empirical Analysis Of Mergers: Efficiency Gains And Impact On Consumer Prices," Journal of Competition Law and Economics, Oxford University Press, vol. 16(1), pages 1-35.
    16. Angelova, Vera & Regner, Tobias, 2018. "Can a bonus overcome moral hazard? Experimental evidence from markets for expert services," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 362-378.
    17. Martin Obradovits & Philipp Plaickner, 2020. "Searching for Treatment," Working Papers 2020-18, Faculty of Economics and Statistics, Universität Innsbruck.
    18. Kerschbamer, Rudolf & Neururer, Daniel & Sutter, Matthias, 2019. "Credence Goods Markets and the Informational Value of New Media: A Natural Field Experiment," IZA Discussion Papers 12184, Institute of Labor Economics (IZA).
    19. Farukh, Razi & Kerkhof, Anna & Loebbing, Jonas, 2020. "Inefficiency and Regulation in Credence Goods Markets with Altruistic Experts," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224590, Verein für Socialpolitik / German Economic Association.
    20. Silvia Angerer & Daniela Glätzle‐Rützler & Christian Waibel, 2021. "Monitoring institutions in healthcare markets: Experimental evidence," Health Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 951-971, May.
    21. Fang Liu & Alexander Rasch & Marco Alexander Schwarz & Christian Waibel, 2020. "The Role of Diagnostic Ability in Markets for Expert Services," CESifo Working Paper Series 8704, CESifo.
    22. Angerer, Silvia & Glätzle-Rützler, Daniela & Waibel, Christian, 2023. "Framing and subject pool effects in healthcare credence goods," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 103(C).

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    More about this item

    Keywords

    Asymmetric information; Auto repair market; Credence goods; Expert; Fraud; Overcharging;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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