Uncovering Sophisticated Discrimination with the Help of Credence Goods Markups: Evidence from a Natural Field Experiment

Jonathan Hall (), Rudolf Kerschbamer, Daniel Neururer () and Eric Skoog ()
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Jonathan Hall: Department of Peace and Conflict Research, Uppsala University, 753 20 Uppsala, Sweden
Rudolf Kerschbamer: Department of Economics, University of Innsbruck, 6020 Innsbruck, Austria
Daniel Neururer: Department of Economics, University of Otago, Dunedin 9054, New Zealand
Eric Skoog: Peace Research Institute Oslo, 0186 Oslo, Norway

Management Science, 2025, vol. 71, issue 1, 694-707

Abstract: Credence goods, such as repair and healthcare services, are characterized by profound information asymmetries between less-informed customers and better-informed expert sellers. These information asymmetries open the door for fraudulent behavior on the seller side. In a preregistered natural field experiment, we vary in one dimension the seller’s perception of whether the service is an ordinary or a credence good service and in the second dimension whether the customer is a member of a minority or a member of the majority. This allows us to measure the size of the induced credence goods markup and to address the question whether it interacts systematically with discrimination. We document the existence of a large credence goods markup, on average. Moreover, we find that members of the minority pay a sizeable discriminatory markup if the good is perceived as a credence good but not if it is perceived as an ordinary good. Our results show that sellers engage in sophisticated discrimination where informational asymmetries are used to hide discriminatory (fraudulent) behavior. With the help of an ex post survey, we derive a possible explanation for our results.

Keywords: natural field experiment; credence goods; discrimination; expert services; credence goods markup; discriminatory markup (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:1:p:694-707

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