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Too Much or Too Little? Price Discrimination in a Market for Credence Goods

Author

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  • Uwe Dulleck
  • Rudolf Kerschbamer
  • Alexander Konovalov

Abstract

In markets for credence goods, sellers are better informed than their customers about the quality that yields the highest surplus from trade. This paper studies second-degree price discrimination in such markets. It shows that discrimination regards the amount of advice offered to customers and that it leads to a different distortion depending on the main source of heterogeneity among consumers. If the heterogeneity is mainly in the expected cost of efficient service, the distortion involves overprovision of quality. By contrast, if consumers differ mainly in the surplus generated whenever the consumer's needs are met, the inefficiency involves underprovision of quality.

Suggested Citation

  • Uwe Dulleck & Rudolf Kerschbamer & Alexander Konovalov, 2024. "Too Much or Too Little? Price Discrimination in a Market for Credence Goods," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 180(1), pages 106-143.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2023-0034
    DOI: 10.1628/jite-2023-0034
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    More about this item

    Keywords

    pricediscrimination; credencegoods; experts; discounters; distributionchannels; price discrimination; credence goods; distribution channels;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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