IDEAS home Printed from https://ideas.repec.org/p/zbw/zewdip/20087.html
   My bibliography  Save this paper

Consumer salience and quality provision in (un)regulated public service markets

Author

Listed:
  • Gu, Yiquan
  • Rasch, Alexander
  • Wenzel, Tobias

Abstract

This paper examines the publication of quality indicators in service markets with public finance systems, such as education and healthcare markets. We provide a spatial model of product differentiation in which the reporting of such indicators increases consumers' decision weight on quality relative to other attributes (such as prices and horizontal match) and study the effects in two market environments: markets with regulated prices and markets with unregulated prices. We find that the publication of quality indicators increases quality investments by service providers, but also leads to higher prices and less product variety. Consumer and total welfare may decrease with such policies, in particular when consumers are heavily subsidised.

Suggested Citation

  • Gu, Yiquan & Rasch, Alexander & Wenzel, Tobias, 2020. "Consumer salience and quality provision in (un)regulated public service markets," ZEW Discussion Papers 20-087, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:20087
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/228540/1/1743819501.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bachi, Benjamin & Spiegler, Ran, 2018. "Buridanic competition," Games and Economic Behavior, Elsevier, vol. 107(C), pages 298-315.
    2. Gu, Yiquan & Wenzel, Tobias, 2009. "A note on the excess entry theorem in spatial models with elastic demand," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 567-571, September.
    3. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2010. "Price and quality in spatial competition," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 471-480, November.
    4. Haisken-DeNew, John & Hasan, Syed & Jha, Nikhil & Sinning, Mathias, 2018. "Unawareness and selective disclosure: The effect of school quality information on property prices," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 449-464.
    5. Antoni Calvó‐Armengol & Yves Zenou, 2002. "The Importance of the Distribution of Consumers in Horizontal Product Differentiation," Journal of Regional Science, Wiley Blackwell, vol. 42(4), pages 793-803.
    6. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2011. "Hospital Competition and Quality with Regulated Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(2), pages 444-469, June.
    7. Chou, Shin-Yi & Deily, Mary E. & Li, Suhui & Lu, Yi, 2014. "Competition and the impact of online hospital report cards," Journal of Health Economics, Elsevier, vol. 34(C), pages 42-58.
    8. Filistrucchi, L. & Ozbugday, F.C., 2012. "Mandatory Quality Disclosure and Quality Supply : Evidence from German Hospitals," Other publications TiSEM 680b0e3e-d3f5-4b91-9803-8, Tilburg University, School of Economics and Management.
    9. Matsumura, Toshihiro & Okamura, Makoto, 2006. "A note on the excess entry theorem in spatial markets," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1071-1076, September.
    10. Pope, Devin G., 2009. "Reacting to rankings: Evidence from "America's Best Hospitals"," Journal of Health Economics, Elsevier, vol. 28(6), pages 1154-1165, December.
    11. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Consumer Choice," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 803-843.
    12. James J. Choi & David Laibson & Brigitte C. Madrian, 2010. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1405-1432, April.
    13. Wang, Justin & Hockenberry, Jason & Chou, Shin-Yi & Yang, Muzhe, 2011. "Do bad report cards have consequences? Impacts of publicly reported provider quality information on the CABG market in Pennsylvania," Journal of Health Economics, Elsevier, vol. 30(2), pages 392-407, March.
    14. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2016. "Competition for Attention," Review of Economic Studies, Oxford University Press, vol. 83(2), pages 481-513.
    15. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
    16. Kurt R. Brekke & Robert Nuscheler & Odd Rune Straume, 2006. "Quality and Location Choices under Price Regulation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 207-227, March.
    17. Benjamin Handel & Jonathan Kolstad & Thomas Minten & Johannes Spinnewijn, 2020. "The social determinants of choice quality: evidence from health insurance in the Netherlands," CEP Discussion Papers dp1724, Centre for Economic Performance, LSE.
    18. Ching‐to Albert Ma & Henry Y. Mak, 2014. "Public Report, Price, and Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(2), pages 443-464, June.
    19. David Dranove & Ginger Zhe Jin, 2010. "Quality Disclosure and Certification: Theory and Practice," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 935-963, December.
    20. Robert Nuscheler, 2003. "Physician Reimbursement, Time-Consistency and the Quality of Care," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(2), pages 302-322, June.
    21. Hehenkamp, Burkhard & Kaarbøe, Oddvar M., 2020. "Location choice and quality competition in mixed hospital markets," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 641-660.
    22. Yi Zhu & Anthony Dukes, 2017. "Prominent Attributes Under Limited Attention," Marketing Science, INFORMS, vol. 36(5), pages 683-698, September.
    23. Allcott, Hunt & Mullainathan, Sendhil & Taubinsky, Dmitry, 2014. "Energy policy with externalities and internalities," Journal of Public Economics, Elsevier, vol. 112(C), pages 72-88.
    24. Tae Jung Yoon, 2020. "Quality Information Disclosure and Patient Reallocation in the Healthcare Industry: Evidence from Cardiac Surgery Report Cards," Marketing Science, INFORMS, vol. 39(3), pages 636-662, May.
    25. Pennerstorfer, Dieter, 2017. "Can competition keep the restrooms clean? Price, quality and spatial competition," Regional Science and Urban Economics, Elsevier, vol. 64(C), pages 117-136.
    26. Botond Koszegi & Adam Szeidl, 2013. "A Model of Focusing in Economic Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 53-104.
    27. Ma, Ching-to Albert & Mak, Henry Y., 2015. "Information disclosure and the equivalence of prospective payment and cost reimbursement," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 439-452.
    28. Bardey, David & Canta, Chiara & Lozachmeur, Jean-Marie, 2012. "The regulation of health care providers’ payments when horizontal and vertical differentiation matter," Journal of Health Economics, Elsevier, vol. 31(5), pages 691-704.
    29. Lex Borghans & Bart H H Golsteyn & Anders Stenberg, 2015. "Does Expert Advice Improve Educational Choice?," PLOS ONE, Public Library of Science, vol. 10(12), pages 1-28, December.
    30. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    31. David Dranove & Mark A. Satterthwaite, 1992. "Monopolistic Competition When Price and Quality are Imperfectly Observable," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 518-534, Winter.
    32. Justine S. Hastings & Jeffrey M. Weinstein, 2008. "Information, School Choice, and Academic Achievement: Evidence from Two Experiments," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1373-1414.
    33. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2017. "Hospital Mergers with Regulated Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(3), pages 597-627, July.
    34. Gravelle, Hugh & Sivey, Peter, 2010. "Imperfect information in a quality-competitive hospital market," Journal of Health Economics, Elsevier, vol. 29(4), pages 524-535, July.
    35. Herr, Annika & Nguyen, Thu-Van & Schmitz, Hendrik, 2016. "Public reporting and the quality of care of German nursing homes," Health Policy, Elsevier, vol. 120(10), pages 1162-1170.
    36. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
    37. Henry Y. Mak, 2017. "Provider performance reports and consumer welfare," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 250-280, March.
    38. Gaynor, Martin, 2007. "Competition and Quality in Health Care Markets," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(6), pages 441-508, February.
    39. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
    40. Yiquan Gu & Alexander Rasch & Tobias Wenzel, 2016. "Price-sensitive demand and market entry," Papers in Regional Science, Wiley Blackwell, vol. 95(4), pages 865-875, November.
    41. Yuk-Shee Chan & Hayne Leland, 1982. "Prices and Qualities in Markets with Costly Information," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 499-516.
    42. Economides, Nicholas, 1993. "Quality variations in the circular model of variety-differentiated products," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 235-257, April.
    43. Matsumura, Toshihiro & Okamura, Makoto, 2006. "Equilibrium number of firms and economic welfare in a spatial price discrimination model," Economics Letters, Elsevier, vol. 90(3), pages 396-401, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Domenico Lisi & Luigi Siciliani & Odd Rune Straume, 2020. "Hospital competition under pay‐for‐performance: Quality, mortality, and readmissions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(2), pages 289-314, April.
    2. Dieter Pennerstorfer, 2014. "Price and Quality Competition in Spatial Markets. The Case of Camping Sites," WIFO Working Papers 466, WIFO.
    3. Chen, Yijuan & Sivey, Peter, 2021. "Hospital report cards: Quality competition and patient selection," Journal of Health Economics, Elsevier, vol. 78(C).
    4. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2017. "Horizontal mergers and product quality," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(4), pages 1063-1103, November.
    5. Gu Yiquan & Wenzel Tobias, 2012. "Price-Dependent Demand in Spatial Models," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-26, March.
    6. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2018. "Can Competition Reduce Quality?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 174(3), pages 421-447, September.
    7. Hugh Gravelle & Rita Santos & Luigi Siciliani & Rosalind Goudie, 2012. "Hospital Quality Competition Under Fixed Prices," Working Papers 080cherp, Centre for Health Economics, University of York.
    8. Brekke, Kurt R. & Nuscheler, Robert & Straume, Odd Rune, 2007. "Gatekeeping in health care," Journal of Health Economics, Elsevier, vol. 26(1), pages 149-170, January.
    9. Katharina Huesmann & Wanda Mimra, 2015. "Quality provision and reporting when health care services are multi-dimensional and quality signals imperfect," CER-ETH Economics working paper series 15/221, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    10. Brekke, Kurt R. & Levaggi, Rosella & Siciliani, Luigi & Straume, Odd Rune, 2016. "Patient mobility and health care quality when regions and patients differ in income," Journal of Health Economics, Elsevier, vol. 50(C), pages 372-387.
    11. Brekke, Kurt R. & Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2010. "Competition and quality in health care markets: A differential-game approach," Journal of Health Economics, Elsevier, vol. 29(4), pages 508-523, July.
    12. repec:zbw:rwirep:0507 is not listed on IDEAS
    13. Nadja Kairies-Schwarz, 2014. "Altruism Heterogeneity and Quality Competition Among Healthcare Providers," Ruhr Economic Papers 0507, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    14. Kairies-Schwarz, Nadja, 2014. "Altruism Heterogeneity and Quality Competition Among Healthcare Providers," Ruhr Economic Papers 507, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    15. Sverre Grepperud & Pål Andreas Pedersen, 2020. "Accreditation in regulated markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1287-1304, October.
    16. Julio César Arteaga & Daniel Flores, 2022. "Price Regulation and Fraud—with Special Emphasis on Gasoline Retailing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(2), pages 175-192, March.
    17. Ghandour, Ziad & Siciliani, Luigi & Straume, Odd Rune, 2022. "Investment and quality competition in healthcare markets," Journal of Health Economics, Elsevier, vol. 82(C).
    18. Huesmann, Katharina & Mimra, Wanda, 2015. "Quality provision and reporting when health care services are multi-dimensional and quality signals imperfect," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112849, Verein für Socialpolitik / German Economic Association.
    19. Filistrucchi, L. & Ozbugday, F.C., 2012. "Mandatory Quality Disclosure and Quality Supply : Evidence from German Hospitals," Other publications TiSEM 680b0e3e-d3f5-4b91-9803-8, Tilburg University, School of Economics and Management.
    20. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2013. "Hospital Mergers: A Spatial Competition Approach," NIPE Working Papers 04/2013, NIPE - Universidade do Minho.
    21. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2010. "Price and quality in spatial competition," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 471-480, November.

    More about this item

    Keywords

    Service markets; Quality reporting; Variety; Entry; Regulation; Public finance;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I20 - Health, Education, and Welfare - - Education - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:20087. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/zemande.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zemande.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.