A Theory of Fraud and Overtreatment in Experts Markets

29 Pages Posted: 26 Oct 2006

See all articles by Ingela Alger

Ingela Alger

University of Toulouse 1 - Toulouse School of Economics (TSE); CNRS UMR 5314 TSE-R

Francois Salanie

National Institute for Agricultural Research (INRA); University of Toulouse 1 - Toulouse School of Economics (TSE)

Abstract

Consumers often rely on an expert's diagnosis to assess their needs. If the expert is also the seller of services, he may use his informational advantage to induce overtreatment, which is a pervasive phenomenon in experts markets. We offer and discuss conditions leading to equilibrium overtreatment in an otherwise purely competitive model. This market failure results from consumers' ability to turn down an expert's recommendation: experts defraud consumers to keep them uninformed, as this deters them from seeking a better price elsewhere.

Suggested Citation

Alger, Ingela and Salanie, Francois, A Theory of Fraud and Overtreatment in Experts Markets. Journal of Economics & Management Strategy, Vol. 15, No. 4, pp. 853-881, Winter 2006, Available at SSRN: https://ssrn.com/abstract=940136 or http://dx.doi.org/10.1111/j.1530-9134.2006.00120.x

Ingela Alger (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

CNRS UMR 5314 TSE-R ( email )

France

Francois Salanie

National Institute for Agricultural Research (INRA) ( email )

21, Allee de Brienne
31000 Toulouse
France

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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