Consumer Information in a Market for Expert Services

Kyle Hyndman and Saltuk Ozerturk ()
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Saltuk Ozerturk: SMU

No 801, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: We analyze the implications of heterogeneously informed consumers in a market for expert services. Our main question is to investigate whether uninformed consumers are the most likely victims of expert cheating. We show that when consumers are heterogeneously informed on their true benefit from an expensive treatment, there is no equilibrium where the expert only cheats uninformed consumers. In fact, informed high-value consumers are the most frequent victims of cheating. Surprisingly, more information on the consumer side increases the inefficiency of the market outcome in terms of the foregone, but required, treatments. When some consumers receive noisy information signals on whether their problem is serious or minor, while others remain uninformed, in the unique equilibrium the expert is truthful to all types of consumers, regardless of their information status.

Keywords: Credence Goods; Expert Cheating; Consumer Information (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-mkt
Date: 2008-04
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