Search and competition in expert markets

Yiran Cao, Yongmin Chen, Yucheng Ding and Tianle Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: We develop a model in which consumers sequentially search experts for recommendations and prices to treat a problem, and experts simultaneously compete in these two dimensions. Consumers have either zero or a positive search cost. In equilibrium, experts may "cheat" by recommending an unnecessary treatment with positive probabilities, prices follow distributions that depend on a consumer's problem type and the treatment, and consumers search with Bayesian belief updating about their problem types. Remarkably, as search cost decreases, both expert cheating and prices can increase stochastically. However, if search cost is sufficiently small, competition forces all experts to behave honestly.

Keywords: search; experts; competition; credence good (search for similar items in EconPapers)
JEL-codes: D8 L1 (search for similar items in EconPapers)
Date: 2022-08-12
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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https://mpra.ub.uni-muenchen.de/114170/8/MPRA_paper_114170.pdf original version (application/pdf)

Related works:
Working Paper: Search and competition in expert markets (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:114170

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