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Using Customer Service to Build Clients’ Trust

Author

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  • Yuk‐Fai Fong
  • Xiaoxiao Hu
  • Ting Liu
  • Xiaoxuan Meng

Abstract

It is well known in the credence‐good literature that in an expert‐client relationship, under the Liability assumptions, clients have to reject the expert’s serious‐treatment recommendations with a positive probability to ensure that the expert honestly recommends treatments. Inefficiency arises because some socially efficient treatments are not provided. We show that the expert can enhance clients’ trust, or acceptance rate of the serious treatment, by providing intrinsically socially inefficient customer service upon recommending the serious treatment. Enhanced clients’ trust leads to higher efficiency and higher profit for the expert. However, trust cannot be enhanced by providing customer service with different timing.

Suggested Citation

  • Yuk‐Fai Fong & Xiaoxiao Hu & Ting Liu & Xiaoxuan Meng, 2020. "Using Customer Service to Build Clients’ Trust," Journal of Industrial Economics, Wiley Blackwell, vol. 68(1), pages 136-155, March.
    • Handle: RePEc:bla:jindec:v:68:y:2020:i:1:p:136-155
    DOI: 10.1111/joie.12219
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    References listed on IDEAS

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    1. Ting Liu, 2011. "Credence Goods Markets With Conscientious And Selfish Experts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 227-244, February.
    2. Yuk-fai Fong, 2005. "When Do Experts Cheat and Whom Do They Target?," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 113-130, Spring.
    3. Fong, Yuk-fai & Liu, Ting & Wright, Donald J., 2014. "On the role of verifiability and commitment in credence goods markets," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 118-129.
    4. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
    5. Kartik, Navin, 2007. "A note on cheap talk and burned money," Journal of Economic Theory, Elsevier, vol. 136(1), pages 749-758, September.
    6. Roman Inderst & Marco Ottaviani, 2013. "Sales Talk, Cancellation Terms and the Role of Consumer Protection," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(3), pages 1002-1026.
    7. Pitchik, Carolyn & Schotter, Andrew, 1987. "Honesty in a Model of Strategic Information Transmission," American Economic Review, American Economic Association, vol. 77(5), pages 1032-1036, December.
    8. Gary Biglaiser, 1993. "Middlemen as Experts," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 212-223, Summer.
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    Cited by:

    1. Chiu, Yen-Lin & Karni, Edi, 2021. "Competitive equilibrium fraud in markets for credence-goods," Journal of Mathematical Economics, Elsevier, vol. 96(C).
    2. Xiaoxiao Hu & Haoran Lei, 2023. "Information transmission in monopolistic credence goods markets," Papers 2303.13295, arXiv.org, revised Apr 2023.

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