Information in a Monopolist's Credence Good Market

Peter-J. Jost, Steffen Reik and Anna Ressi

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: Credence goods markets, such as those for car repairs and medical treatments, are generally characterized by an ex-ante and ex-post information asymmetry between the uninformed buyer and the informed seller. Previous literature demonstrates that efficiency and fraud in a monopolist credence goods market are crucially determined by two key assumptions concerning the verifiability of the quality provided and the expert's liability. In this paper, we identify the information distribution among customers as a third important determinant. Contrary to basic intuition, we find that improving the level of customers' information might actually lead to welfare losses. Further, we highlight the supremacy of the assumption regarding the expert's liability for determining whether informed customers have real effects on market outcomes. On the other hand and in contrast to traditional models, the verifiability of the quality provided is only of secondary importance.

Keywords: Credence Goods; Liability; Verifiability; Information. (search for similar items in EconPapers)
JEL-codes: D42 D82 I11 L0 L10 L15 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203555

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