The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition

Uwe Dulleck, Rudolf Kerschbamer and Matthias Sutter

No 42, NCER Working Paper Series from National Centre for Econometric Research

Abstract: Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market break-down. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that either liability or verifiability yields efficiency, we find that liability has a crucial, but verifiability only a minor effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated.

Date: 2009-03-02
New Economics Papers: this item is included in nep-com, nep-exp and nep-mic
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Related works:
Working Paper: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (2009)
Working Paper: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (2009)
Working Paper: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (2009)
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