Costly diagnosis and price dispersion

Nitzan, Shmuel; Tzur, Joseph

doi:10.1016/0165-1765(91)90027-i

Cited by 6 publications

(2 citation statements)

References 12 publications

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“…This is the standard assumption made in literature; see, e.g., Nitzan and Tzur (1991), Wolinsky (1993), or Taylor (1995. It captures in a straightforward manner the idea that it is cheaper to provide diagnosis and repair jointly rather than separately.…”

Section: )mentioning

confidence: 98%

Credence Goods: The Monopoly Case

Emons¹

2005

Incentives and Economic Behaviour

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With a credence good consumers are never sure about the extent of the good they actually need. Therefore, the seller acts as the expert determining the customers' requirements. This information asymmetry between buyers and the seller creates strong incentives for the seller to cheat. We analyze whether the market mechanism may induce non-fraudulent seller behavior. First, we consider observable and verifiable expert services, i.e., buyers observe how much of the good they get, yet they do not know how much they need. There we distinguish two different scenarios. From the observation of a) capacity and prices or b) just prices consumers attempt to infer the quality of the seller's services. We show for both constellations that profit maximizing credence goods monopolists always choose non-fraudulent behavior. Second, we analyze unobservable expert services, i.e., consumers neither know how much they need nor how much they get. If consumers observe a) capacity and prices, they obtain honest service. If, however, consumer observe b) only prices, no trade takes place.

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Section: )mentioning

confidence: 98%

Credence Goods: The Monopoly Case

Emons¹

2005

Incentives and Economic Behaviour

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“…There is an existing literature on credence goods that allows for a positive or negative impact on the ultimate quality of the good but where the consumer cannot differentiate it at the time of purchase (Darby and Karni 1973;Leland 1979;Schotter 1987, 1993;Nitzan and Tzur 1991;Wolinsky 1993). There is also a literature on production practices that impart positive ethical attributes such as with an eco-label (Nimon and Beghin 1999a, b;Kirchhoff 2000;Grolleau 2001;Bagnoli and Watts 2003).…”

Section: Introductionmentioning

confidence: 99%

Ethics, Welfare, and Markets: An Economic Analysis

Lence

Hayes

2010

Southern Economic Journal

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The present article examines society's welfare when goods with identical physical attributes can be produced using two alternative technologies, one of them less ethically desirable but less expensive for at least some producers. For the scenario where identification costs must be borne by producers and consumers of the high-quality good, the outcome under unregulated markets is identical to the optimal solution of a central planner constrained to neither ban the undesirable technology nor segregate the low-quality good. However, under certain circumstances the unregulated market equilibrium may be improved upon by government intervention that shifts the burden of identification costs to the producers of the low-quality good, or which bans the production of the low-quality good. The optimal intervention needs to be determined case-by-case and depends on consumer preferences, relative production costs, and relative costs of identification and fraud prevention.

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Real Estate Rental Growth Rates at Different Points in the Physical Market Cycle

Mueller

1999

Journal of Real Estate Research

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Costly diagnosis and price dispersion

Cited by 6 publications

References 12 publications

Credence Goods: The Monopoly Case

Credence Goods: The Monopoly Case

Ethics, Welfare, and Markets: An Economic Analysis

Real Estate Rental Growth Rates at Different Points in the Physical Market Cycle

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