Credence Goods Markets with Conscientious and Selfish Experts

Liu, Ting (2006): Credence Goods Markets with Conscientious and Selfish Experts. Unpublished.

Abstract

I study credence goods markets when there are both selfish and conscientious experts. The selfish expert is a profit maximizer. The conscientious expert wants to maximize profit and repair the consumer's problem. There are two classes of equilibria: uniform-price equilibria and nonuniform-price equilibria. A consumer cannot infer the expert's type from his price list in a uniform-price equilibrium but can do that in a nonuniform-price equilibrium. When the fraction of the conscientious expert is small, the selfish expert will be honest about the severity of the consumer's problem. When the fraction of the conscientious expert is large, the selfish expert will cheat the consumer; overcharging the consumer whenever he offers to repair the problem. Finally, more conscientious experts may result in a larger social loss. When the fraction of the conscientious expert is close to one of the two extremes, 0 and 1, more conscientious experts will result in smaller social loss. When the fraction of the conscientious expert is in a middle range, more conscientious experts may result in a larger social loss.

• Item Type: MPRA Paper
• Institution: Boston University
• Language: English
• Keywords: credence goods markets; conscientious experts; selfish experts; social loss
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L15 - Information and Product Quality; Standardization and Compatibility; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L12 - Monopoly; Monopolization Strategies

References

[1]Alger, Ingela and Francois Salanie. A Theory of Fraud and Over-Treatment in Ex- perts Markets. Journal of Economics and Management Strategy, Vol. 15(4):853-881, 2006. [2] Alger, Ingela and Renault, Regis. Screening Ethics when Honest Agents Keep their Word. Economic Theory, 30:291-311, 2007. [3] Darby, M.R. and Karni, E. Free Competition and the Optimal Amount of Fraud. Journal of Law and Economics, Vol. 16:pp. 67-88, 1973. [4] Emons, W. Credence Goods and Fraudulent Experts. Rand Journal of Economics, 28:pp. 107-119, 1997. [5] Emons, W. Credence Goods Monopolists. International Journal of Industrial Orga- nization, 19:pp. 375-389, 2001. [6] Ewen, R., Hulin, C., Smith, P. C., and Locke, E. A. . An Empirical Test of the Herzberg Two-Factor Theory. Journal of Applied Psychology, Vol. 50:pp. 544-550, 1966. [7] Fong, Yuk-fai. When Do Experts Cheat and Whom Do They Target? RAND Journal of Economics, Vol. 36(No. 1):pp. 113-130, Spring 2005. [8] Friedlander, F. Job Characteristics as Satis¯ers and Dissatis¯ers. Journal of Applied Psychology, Vol. 48:pp. 388-392, 1964. [9] Herzberg, F., Mausner, B., and Snyderman, B. B. The Motivation to Work (2nd ed.). New York: John Wiley & Sons, 1959. [10] Knoop, R. Work Values and Job Satisfaction. Journal of Psychology, Vol. 128:683- 691, 1994. [11] Marty, Fridolin E. . The Expert-Client Information Problem. working paper, 1999. [12] Pitchik, C. and Schotter, A. Honesty in a Model of Strategic Information. American Economic Review, Vol. 77:pp. 1032-1036, 1987. 27 [13] Wernimont, P. F. Intrinsic and Extrinsic Factors in Job Satisfaction. Journal of Applied Psychology, Vol. 50:pp. 41-50, 1966. [14] Wolinsky, A. Competition in a Market for Informed Experts' Services. RAND Journal of Economics, Vol. 24:pp. 380-398, 1993. 2