Transparency in Markets for Experience Goods: Experimental Evidence

20 Pages Posted: 21 Nov 2014

See all articles by Bastian Henze

Bastian Henze

Tilburg University - Department of Economics - CentER & TILEC

Florian Schuett

Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Jasper P. Sluijs

Utrecht University School of Law

Date Written: January 2015

Abstract

We propose an experimental design to investigate the role of information disclosure in the market for an experience good. The market is served by a duopoly of firms that choose both the quality and the price of their product. Consumers differ in their taste for quality and choose from which firm to buy. We compare four different treatments in which we vary the degree to which consumers are informed about quality. Contrary to theoretical predictions, firms do not differentiate quality under full information. Rather, both tend to offer products of similar, high quality, entailing more intense price competition than predicted by theory. Under no information, we observe a “lemons” outcome where quality is low. At the same time, firms manage to maintain prices substantially above marginal cost. In two intermediate treatments, quality is significantly higher than the no-information level, and there is evidence that prices become better predictors of quality. Taken together these findings suggest that information disclosure is a more effective tool to raise welfare and consumer surplus than theory would lead one to expect.

JEL Classification: L15, C91, D82

Suggested Citation

Henze, Bastian and Schuett, Florian and Sluijs, Jasper P., Transparency in Markets for Experience Goods: Experimental Evidence (January 2015). Economic Inquiry, Vol. 53, Issue 1, pp. 640-659, 2015. Available at SSRN: https://ssrn.com/abstract=2528853 or http://dx.doi.org/10.1111/ecin.12143

Bastian Henze (Contact Author)

Tilburg University - Department of Economics - CentER & TILEC ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Florian Schuett

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Jasper P. Sluijs

Utrecht University School of Law ( email )

Janskerkhof 3
Utrecht, 3512 BK
Netherlands

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
326
PlumX Metrics