The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition

Uwe Dulleck, Rudolf Kerschbamer and Matthias Sutter

No 348, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market break-down. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that either liability or verifiability yields efficiency, we find that liability has a crucial, but verifiability only a minor effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated.

Keywords: Credence goods; Experiment; Liability; Verifiability; Reputation; Competition (search for similar items in EconPapers)
JEL-codes: C72 C91 D40 D82 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2009-03-02
New Economics Papers: this item is included in nep-cbe, nep-com, nep-exp and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Forthcoming in American Economic Review.

Downloads: (external link)
http://hdl.handle.net/2077/19527 (text/html)

Related works:
Working Paper: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (2009)
Working Paper: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (2009)
Working Paper: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:gunwpe:0348

Ordering information: This working paper can be ordered from
jessica.oscarsson@economics.gu.se

Access Statistics for this paper

More papers in Working Papers in Economics from University of Gothenburg, Department of Economics Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Jessica Oscarsson (jessica.oscarsson@economics.gu.se).