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Experts vs. Discounters: Consumer Free Riding and Experts Withholding Advice in Markets for Credence Goods

Dulleck, Uwe & Kerschbamer, Rudolf (2006) Experts vs. Discounters: Consumer Free Riding and Experts Withholding Advice in Markets for Credence Goods. International Journal of Industrial Organization, 27(200), pp. 15-23.

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Abstract

This paper studies the incentives for credence goods experts to invest effort in diagnosis if effort is both costly and unobservable, and if they face competition by discounters who are not able to perform a diagnosis. The unobservability of diagnosis effort and the credence characteristic of the good induce experts to choose incentive compatible tariff structures. This makes them vulnerable to competition by discounters. We explore the conditions under which honestly diagnosing experts survive competition by discounters; we identify situations in which experts misdiagnose consumers in order to prevent them from free-riding on experts' advice; and we discuss policy options to solve the free-riding consumers–cheating experts problem.

Impact and interest:

6 citations in Scopus
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ID Code: 31020
Item Type: Journal Article
Additional URLs:
Keywords: Experts , Discounters, Free diagnosis, Vertical Restraints, Free-riding consumers, Credence goods, Contingent diagnostic fees, JEL classification codes: L15; D82; D40
DOI: 10.1016/j.ijindorg.2008.02.005
ISSN: 0167-7187
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > Economic Theory (140100) > Microeconomic Theory (140104)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Industry Economics and Industrial Organisation (140209)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2008 Elsevier
Deposited On: 19 Feb 2010 04:53
Last Modified: 29 Feb 2012 13:42

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