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Where Are The Problems with Credence Goods?

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  • Uwe Dulleck

    (University of Vienna)

Abstract

With credence goods consumers cannot judge the quality they receive compared to the quality they need. The needed quality can only be observed by an expert seller who may exploit the information asymmetry by cheating. In recent years various contributions have analyzed the credence goods problem under a wide variety of assumptions yielding equilibria exhibiting various degrees of inefficiencies and fraud. The present paper presents conditions under which market institutions solve the fraudulent expert problem at no cost and characterizes the inefficiencies that arise if at least one of these conditions is violated. Our analysis not only permits a clearer discrimination between situations in which markets prevent fraud and those in which they do not; it also helps to identify the forces driving the different inefficiency results derived in the literature.

Suggested Citation

  • Uwe Dulleck, 2000. "Where Are The Problems with Credence Goods?," Econometric Society World Congress 2000 Contributed Papers 1441, Econometric Society.
    • Handle: RePEc:ecm:wc2000:1441
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    Cited by:

    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. Dulleck, Uwe & Kerschbamer, Rudolf, 2009. "Experts vs. discounters: Consumer free-riding and experts withholding advice in markets for credence goods," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 15-23, January.
    3. Uwe Dulleck & Rudolf Kerschbamer, 2005. "Price discrimination via the choice of distribution channels," Economics working papers 2005-08, Department of Economics, Johannes Kepler University Linz, Austria.

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