The information paradox in a monopolist’s credence goods market

Peter-J. Jost, Steffen Reik and Anna Ressi

International Journal of Industrial Organization, 2021, vol. 75, issue C

Abstract: Credence good 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 customers and the informed expert. In this paper, we allow for both uninformed as well as informed customers to exist in a monopolist credence goods market. We analyze the implications of this kind of informational heterogeneity for the expert’s pricing decisions, incentives to commit fraud, as well as market efficiency and social welfare under different institutional arrangements. Most importantly, our approach enables us to evaluate endeavours to improve the level of customers’ information. Contrary to basic intuition, we find that recent developments and policy measures originally aimed at improving social welfare by increasing the level of information might actually backfire.

Keywords: Credence goods; Liability; Verifiability; Information improvements (search for similar items in EconPapers)
JEL-codes: C70 D82 I11 L12 L15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016771872030117X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:75:y:2021:i:c:s016771872030117x

DOI: 10.1016/j.ijindorg.2020.102694

Access Statistics for this article

International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

More articles in International Journal of Industrial Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().