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Too Much or Too Little? Price-Discrimination in a Market for Credence Goods

Author

Listed:
  • Dulleck, Uwe

    (QUT School of Economics and Finance)

  • Kerschbamer, Rudolf

    (Dept of Economics, University of Innsbruck and CEPR)

  • Konovalov, Alexander

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

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.

Suggested Citation

  • Dulleck, Uwe & Kerschbamer, Rudolf & Konovalov, Alexander, 2014. "Too Much or Too Little? Price-Discrimination in a Market for Credence Goods," Working Papers in Economics 582, University of Gothenburg, Department of Economics, revised Apr 2014.
    • Handle: RePEc:hhs:gunwpe:0582
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    File URL: https://gupea.ub.gu.se/handle/2077/34770
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Price Discrimination; Credence Goods; Experts; Discounters; Distribution Channels;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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