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Competition and Endogenous Impatience in Credence-Good Markets

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  • Jeremy Sandford

Abstract

In markets for credence goods, such as doctor visits, customers sample a firm for a few periods, before deciding whether to retain or fire that firm. In our model, customers have endogenously determined patience in tolerating bad outcomes from credence-good providers. The more competitive the market, the more options customers have away from a firm, and so the less tolerant of bad outcomes she will be. Competition thus increases equilibrium firm effort, as providers work harder to impress impatient customers. Higher effort raises customer surplus and helps balance the informational advantages providers enjoy in credence-good markets.

Suggested Citation

  • Jeremy Sandford, 2013. "Competition and Endogenous Impatience in Credence-Good Markets," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(3), pages 531-565, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201309)169:3_531:caeiic_2.0.tx_2-1
    DOI: 10.1628/093245613X669420
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    References listed on IDEAS

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    1. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
    2. James D. Dana Jr. & Yuk‐Fai Fong, 2011. "Product Quality, Reputation, And Market Structure," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 1059-1076, November.
    3. Al-Najjar, Nabil Ibraheem, 1995. "Decomposition and Characterization of Risk with a Continuum of Random Variables," Econometrica, Econometric Society, vol. 63(5), pages 1195-1224, September.
    4. Bar-Isaac, Heski, 2005. "Imperfect competition and reputational commitment," Economics Letters, Elsevier, vol. 89(2), pages 167-173, November.
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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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