Too Much or Too Little? Price-Discrimination in a Market for Credence Goods

Uwe Dulleck, Rudolf Kerschbamer and Alexandr Konovalov

No 582, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: This article studies second-degree price-discrimination in markets for credence goods. Such markets are affected by asymmetric informationbecause expert sellers are better informed than their customers about the quality that yields the highest surplus from trade. We show that discrimination regards the amount of advice offered to customers and that it leads to a different equilibrium distortion depending on the main source of heterogeneity among consumers. If consumers differ mainly in the expected cost needed to generate consumer surplus, the inefficiency occurring at the bottom of the type distribution involves overprovision of quality. By contrast, if consumers differ in the surplus generated whenever the consumer’s needs are met, the inefficiency involves underprovision of quality.

Keywords: Price Discrimination; Credence Goods; Experts; Discounters; Distribution Channels (search for similar items in EconPapers)
JEL-codes: D40 D82 L15 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2014-01, Revised 2014-04
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind, nep-mic and nep-mkt
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Related works:
Working Paper: Too much or too little? Price-discrimination in a market for credence goods (2014)
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