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Searching for Treatment

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  • Martin Obradovits
  • Philipp Plaickner

Abstract

n markets for expert credence goods such as medical treatments and technical repairs, overtreatment is a common problem. However, when experts are free to choose treatment prices, this behavior is difficult to rationalize. We explain overtreatment in a model where consumers can seek treatment from an informed, liable expert or purchase speculative minor treatments from fringe firms, with costly search. Next to overtreatment, we show that wasteful search and the purchase of ineffective treatments may occur in equilibrium. Welfare is non-monotonic in search costs and can even be maximal when these are large. Expert competition may not mitigate market distortions.

Suggested Citation

  • Martin Obradovits & Philipp Plaickner, 2024. "Searching for Treatment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 180(1), pages 144-186.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2023-0031
    DOI: 10.1628/jite-2023-0031
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    Cited by:

    1. Fang Liu & Alexander Rasch & Marco Alexander Schwarz & Christian Waibel, 2020. "The Role of Diagnostic Ability in Markets for Expert Services," CESifo Working Paper Series 8704, CESifo.

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    More about this item

    Keywords

    expertservices; credencegoods; overtreatment; search; repair; expert services; credence goods;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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