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The economics of credence goods: An experimental investigation of the role of verifiability, liability, competition and reputation in credence goods markets

Dulleck, Uwe, Kerschbamer, Rudolf, & Sutter, Matthias (2009) The economics of credence goods: An experimental investigation of the role of verifiability, liability, competition and reputation in credence goods markets. In Proceedings of the Annual Congress of Verein Fur Socialpolitik 2009, Verein, Fur Socialpolitik, Magdeburg, pp. 1-48.

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Abstract

Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market break-down. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that either liability or verifiability yields efficiency, we find that liability has a crucial, but verifiability only a minor effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated.

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ID Code: 32444
Item Type: Conference Paper
Keywords: Credence Goods, Expert Services, Behavioural Economics
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Industry Economics and Industrial Organisation (140209)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Experimental Economics (140206)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2009 [please consult the authors]
Deposited On: 03 Jun 2010 14:18
Last Modified: 28 Aug 2014 10:29

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