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 analyze a model where consumers sequentially search experts for treatment recommendations and prices, facing either zero or a positive search cost, while experts simultaneously compete in these two dimensions. In equilibrium, experts may “cheat” by overstating the severity of a consumer’s problem and recommending an unnecessary treatment, prices follow distributions depending on the problem type and the treatment, and consumers employ Bayesian belief updating about their problem types during search. Paradoxically, as search cost decreases, expert cheating and prices can both increase stochastically. However, if search cost is sufficiently small, competition will force 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, Revised 2024-10-27
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Related works:
Working Paper: Search and competition in expert markets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:122509

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