Article thumbnail
Location of Repository

Experts vs. Discounters: Consumer Free Riding and Experts Withholding Advice in Markets for Credence Goods

By Uwe Dulleck and Rudolf Kerschbamer

Abstract

This paper studies the incentives for credence goods experts to invest effort in diagnosis if effort is both costly and unobservable, and if they face competition by discounters who are not able to perform a diagnosis. The unobservability of diagnosis effort and the credence characteristic of the good induce experts to choose incentive compatible tariff structures. This makes them vulnerable to competition by discounters. We explore the conditions under which honestly diagnosing experts survive competition by discounters; we identify situations in which experts misdiagnose consumers in order to prevent them from free-riding on experts' advice; and we discuss policy options to solve the free-riding consumers–cheating experts problem

Topics: 140104 Microeconomic Theory, 140209 Industry Economics and Industrial Organisation, Experts, Discounters, Free diagnosis, Vertical Restraints, Free-riding consumers, Credence goods, Contingent diagnostic fees, JEL classification codes: L15; D82; D40
Publisher: Elsevier
Year: 2009
DOI identifier: 10.1016/j.ijindorg.2008.02.005
OAI identifier: oai:eprints.qut.edu.au:31020
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • https://eprints.qut.edu.au/310... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.