Consumer information in a market for expert services

K. Hyndman, S. Ozerturk

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Abstract we present a model of credence goods in which the consumers are heterogenous in terms of the valuation they place for getting a serious problem fixed. We introduce consumer information into this framework by assuming that, prior to visiting an expert, some consumers receive an information signal about whether they have a serious or a minor problem. We show that when the fraction of consumers with low willingness to pay is sufficiently high, the expert does not cheat any low valuation consumer regardless of their information status, but cheats the high valuation consumers: those high-valuation consumers with bad signals are the most frequent victims of cheating, whereas those with good signals are the least likely victims. When the fraction of consumers with low willingness to pay is below a certain threshold, however, the unique equilibrium involves no cheating.
Original languageEnglish
Pages (from-to)628-640
Number of pages13
JournalJournal of Economic Behavior & Organization
Volume80
Issue number3
DOIs
Publication statusPublished - 1 Jan 2011

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