Information availability and ability choice in a market for physicians

Edgardo Lara Córdova and Javier A. Rodríguez‐Camacho

Metroeconomica, 2022, vol. 73, issue 1, 245-267

Abstract: We study the ability choices and pricing strategies of physicians in a duopolistic market where consumers base their decisions on anecdotes. The consumers are aware of only some of the physicians and estimate their abilities by taking a sample from the patients a physician has previously treated. In this setting, situations arise where physicians have incentives to choose a low level of ability even when it is costless. Namely, more information availability leads to more ability differentiation and a lower average level in equilibrium. Conversely, an equilibrium where both physicians choose a maximum ability is possible when information on at least one of the physicians is not readily available.

Date: 2022
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