Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 582: Too Much or Too Little? Price-Discrimination in a Market for Credence Goods
Uwe Dulleck (), Rudolf Kerschbamer () and Alexander Konovalov ()
Additional contact information
Uwe Dulleck: QUT School of Economics and Finance
Rudolf Kerschbamer: Dept of Economics, University of Innsbruck and CEPR
Alexander Konovalov: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 Gothenburg, SWEDEN
Abstract: This article studies second-degree price-discrimination in markets for credence goods. Such markets are affected by asymmetric informationbecause expert sellers are better informed than their customers about the quality that yields the highest surplus from trade. We show that discrimination regards the amount of advice offered to customers and that it leads to a different equilibrium distortion depending on the main source of heterogeneity among consumers. If consumers differ mainly in the expected cost needed to generate consumer surplus, the inefficiency occurring at the bottom of the type distribution involves overprovision of quality. By contrast, if consumers differ in the surplus generated whenever the consumer’s needs are met, the inefficiency involves underprovision of quality.
Keywords: Price Discrimination; Credence Goods; Experts; Discounters; Distribution Channels
42 pages, First version: January 2014. Revised: April 2014.
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