Experts vs. discounters: consumer free riding and experts withholding advice in markets for credence goods

Uwe Dulleck and Rudolf Kerschbamer

No 2005-09, Economics working papers from Department of Economics, Johannes Kepler University Linz, Austria

Abstract: This paper studies price competition between experts and discounters in a market for credence goods. While experts can identify a consumer’s problem by exerting costly but unobservable diagnosis effort, discounters just sell treatments without giving any advice. The unobservability of diagnosis effort induces experts to use their tariffs as signaling devices. This makes them vulnerable to competition by discounters. We explore the conditions under which experts survive competition by discounters and find that there exist situations in which adding a single customer to a large population of existing consumers leads to a switch from an experts only to a discounters only market. We also discuss whether vertical restraints can alleviate these inefficiencies.

Keywords: Experts; Discounters; Credence Goods; Vertical Restraints (search for similar items in EconPapers)
JEL-codes: D40 D82 L15 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Experts vs. discounters: Consumer free-riding and experts withholding advice in markets for credence goods (2009)
Working Paper: Experts vs. Discounters: Consumer Free Riding and Experts Withholding Advice in Markets for Credence Goods (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:jku:econwp:2005_09

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