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The good, the bad and the naive: Do fair prices signal good types or do they induce good behaviour?

Author

Listed:
  • Uwe Dulleck
  • David Johnston
  • Rudolf Kerschbamer
  • Matthias Sutter

Abstract

Evidence on behavior of experts in credence goods markets raises an important causality issue: Do "fair prices" induce "good behavior", or do "good experts" post "fair price"? To answer this question we propose and test a model with three seller types: "the good" choose fair prices and behave consumer-friendly; "the bad" mimic the good types' price-setting, but cheat on quality; and "the naive" fall victim to a projection bias that all sellers behave like the bad types. OLS, sample selection and fixed effects regressions support the model's predictions and show that causality goes from good experts to fair prices.

Suggested Citation

  • Uwe Dulleck & David Johnston & Rudolf Kerschbamer & Matthias Sutter, 2012. "The good, the bad and the naive: Do fair prices signal good types or do they induce good behaviour?," Working Papers 2012-03, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2012-03
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    References listed on IDEAS

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    Cited by:

    1. Balafoutas, Loukas & Kerschbamer, Rudolf, 2020. "Credence goods in the literature: What the past fifteen years have taught us about fraud, incentives, and the role of institutions," Journal of Behavioral and Experimental Finance, Elsevier, vol. 26(C).
    2. Bartke, Stephan, 2015. "The economic role of valuers in real property markets," UFZ Discussion Papers 13/2015, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    3. Mimra, Wanda & Rasch, Alexander & Waibel, Christian, 2016. "Price competition and reputation in credence goods markets: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 100(C), pages 337-352.
    4. Momsen, Katharina, 2021. "Recommendations in credence goods markets with horizontal product differentiation," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 19-38.

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    More about this item

    Keywords

    credence goods; experts; pricing; experiment; other regarding preferences; signalling; projection bias;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • 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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