Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 348: The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition
Uwe Dulleck, Kerschbamer Rudolf and Sutter Matthias ()
Additional contact information
Uwe Dulleck: Queensland University of Technology
Kerschbamer Rudolf: University of Innsbruck and CEPR
Sutter Matthias: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Göteborg University, Box 640, SE 40530 GÖTEBORG
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.
Keywords: Credence goods; Experiment; Liability; Verifiability; Reputation; Competition
66 pages, March 2, 2009
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