Credence Goods Markets and the Informational Value of New Media: A Natural Field Experiment

31 Pages Posted: 21 May 2019

See all articles by Rudolf Kerschbamer

Rudolf Kerschbamer

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

Daniel Neururer

University of Innsbruck

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: February 2019

Abstract

Credence goods markets are characterized by pronounced informational asymmetries between consumers and expert sellers. As a consequence, consumers are often exploited and market efficiency is threatened. However, in the digital age, it has become easy and cheap for consumers to self-diagnose their needs using specialized webpages or to access other consumers' reviews on social media platforms in search for trustworthy sellers. We present a natural field experiment that examines the causal effect of information acquisition from new media on the level of sellers' price charges for computer repairs.We find that even a correct self-diagnosis of a consumer about the appropriate repair does not reduce prices, and that an incorrect diagnosis more than doubles them. Internet ratings of repair shops are a good predictor of prices. However, the predictive valued of reviews depends on whether they are judged as reliable or not. For reviews recommended by the platform Yelp we find that good ratings are associated with lower prices and bad ratings with higher prices, while non-recommended reviews have a clearly misleading effect, because non-recommended positive ratings increase the price.

Keywords: credence goods, fraud, information acquisition, internet, field experiment

JEL Classification: C93, D82

Suggested Citation

Kerschbamer, Rudolf and Neururer, Daniel and Sutter, Matthias, Credence Goods Markets and the Informational Value of New Media: A Natural Field Experiment (February 2019). IZA Discussion Paper No. 12184. Available at SSRN: https://ssrn.com/abstract=3390171

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

Daniel Neururer

University of Innsbruck ( email )

Universit├Ątsstra├če 15
Innsbruck, 6020
Austria

Matthias Sutter (Contact Author)

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

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