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

67 Pages Posted: 13 Mar 2009

See all articles by Uwe Dulleck

Uwe Dulleck

Queensland University of Technology - School of Economics and Finance

Rudolf Kerschbamer

University of Innsbruck; Centre for Economic Policy Research (CEPR)

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Cologne - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March, 13 2009

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.

Keywords: credence goods, experiment, liability, verifiability, reputation, competition

JEL Classification: C72, C91, D40, D82

Suggested Citation

Dulleck, Uwe and Kerschbamer, Rudolf and Sutter, Matthias, The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition (March, 13 2009). IZA Discussion Paper No. 4030. Available at SSRN: https://ssrn.com/abstract=1359217

Uwe Dulleck (Contact Author)

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Rudolf Kerschbamer

University of Innsbruck ( email )

Universitaetsstrasse 15
Innsbruck, A - 6020
Austria
+43 512 507 7400 (Phone)
+43 512 507 2980 (Fax)

HOME PAGE: http://www.uibk.ac.at/c/c4/c409/staff/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Cologne - Department of Economics

Cologne, 50923
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
315
Abstract Views
1,214
rank
93,993
PlumX Metrics