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Learning in Credence Good Markets: An Example of Vitamins

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  • Demko, Iryna
  • Jaenicke, Edward

Abstract

Unlike many studies of learning and pharmaceuticals, this paper considers credence goods such as vitamins and the role of consumer experience in resolving uncertainty when the user cannot observe the effects of the goods after consumption. The Homescan data justifies variations in the purchases: 45% of households choose different Universal Product Code (UPC) items during subsequent shopping trips than the ones they bought originally. My findings suggest that the probability of choosing Brand 1 increases after a positive experience with Brand 1 and declines after a positive experience with Brand 2. This is based on the assumption that the consumer has had a positive experience about the product if she bought it with a current purchase and three periods back. In a structural model I intend to relax this assumption and compare the endogenous speed of learning about vitamins with the speed of learning about drugs.

Suggested Citation

  • Demko, Iryna & Jaenicke, Edward, 2014. "Learning in Credence Good Markets: An Example of Vitamins," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169880, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea14:169880
    DOI: 10.22004/ag.econ.169880
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    References listed on IDEAS

    as
    1. Igal Hendel & Aviv Nevo, 2006. "Measuring the Implications of Sales and Consumer Inventory Behavior," Econometrica, Econometric Society, vol. 74(6), pages 1637-1673, November.
    2. Igal Hendel & Aviv Nevo, 2006. "Sales and consumer inventory," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 543-561, September.
    3. Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, July.
    4. Igal Hendel & Aviv Nevo, 2006. "Sales and Consumer Inventory," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 543-561, Autumn.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Demand and Price Analysis; Food Consumption/Nutrition/Food Safety; Health Economics and Policy;
    All these keywords.

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