Price competition and reputation in credence goods markets: Experimental evidence

Wanda Mimra, Alexander Rasch and Christian Waibel

Games and Economic Behavior, 2016, vol. 100, issue C, 337-352

Abstract: In credence goods markets, experts have better information about the appropriate quality of treatment than their customers. Because experts provide both the diagnosis and the treatment, there is opportunity for fraud. We experimentally investigate how the intensity of price competition and the level of customer information about past expert behavior influence experts' incentives to defraud their customers when experts can build up reputation. We show that the level of fraud is significantly higher under price competition than when prices are fixed, as the price decline under a competitive-price regime inhibits quality competition. More customer information does not necessarily reduce the level of fraud.

Keywords: Credence good; Expert; Fraud; Price competition; Reputation; Overcharging; Undertreatment (search for similar items in EconPapers)
JEL-codes: D82 L15 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (60)

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Working Paper: Price competition and reputation in credence goods markets: Experimental evidence (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:100:y:2016:i:c:p:337-352

DOI: 10.1016/j.geb.2016.09.012

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