Equilibrium information in credence goods

Ting Liu and Ching-to Ma

Games and Economic Behavior, 2024, vol. 145, issue C, 84-101

Abstract: We study credence goods in a general model. A consumer may suffer a loss which is a continuous random variable. Privately observing the loss value, an expert can provide a repair at a price to eliminate the consumer's loss. All perfect-Bayesian equilibria are inefficient, in that some losses are not repaired. In closed form, we derive a pooling equilibrium (where losses are inferred to be in an interval), and a separating equilibrium (where losses are precisely inferred). If the expert can acquire an information structure on losses, the first best is achieved by a binary signal. Results are robust when cost and loss are random and correlated, and when there are multiple experts.

Keywords: Credence goods; Experts; Separating equilibrium; Pooling equilibrium; Information acquisition (search for similar items in EconPapers)
JEL-codes: D80 D82 D83 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:145:y:2024:i:c:p:84-101

DOI: 10.1016/j.geb.2024.03.002

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