Price competition and reputation in credence goods markets: Experimental evidence

Mimra, Wanda; Rasch, Alexander; Waibel, Christian

doi:10.1016/j.geb.2016.09.012

Cited by 44 publications

(11 citation statements)

References 16 publications

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“…Although only ~20% of prices were equal markup, physicians still provided over 50% honest treatment in most sessions. This propensity for honesty was also documented in the literature ( 11 , 15 , 17 ). Overtreat (undertreat) pricing was closely related to the overtreatment (undertreatment) behavior of physicians.…”

Section: Resultssupporting

confidence: 67%

“…In recent years, the adoption of experimental methodologies has supplied vital empirical evidence and bolstered the promotion of the field. Only Dulleck et al ( 11 ) and Mimra et al ( 15 ) examined the role of competition through experiments and both found that price competition lowers the market price but leads to an increase in fraud by sellers. Dulleck et al ( 11 ) and Mimra et al ( 15 ) assumed that all experts and consumers are homogeneous.…”

Section: Introductionmentioning

confidence: 99%

“…Only Dulleck et al ( 11 ) and Mimra et al ( 15 ) examined the role of competition through experiments and both found that price competition lowers the market price but leads to an increase in fraud by sellers. Dulleck et al ( 11 ) and Mimra et al ( 15 ) assumed that all experts and consumers are homogeneous. However, the assumption of homogeneity may result in an underestimation of the importance of competition because, in reality, experts are frequently distinct from one another, and competition could also contribute to the survival of the fittest.…”

Section: Introductionmentioning

confidence: 99%

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How does market competition affect supplier-induced demand? An experimental study

Chen¹,

Pan²,

Ding³

2023

Front. Public Health

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IntroductionThis study investigated the impact of competition on supplier-induced demand in medical markets theoretically and experimentally.MethodsWe employed the framework of credence goods to describe the information asymmetry between physicians and patients, and theoretically derives predictions of physicians' behaviors in monopolistic and competitive markets. Then we conducted behavioral experiments to empirically test the hypotheses.ResultsThe theoretical analysis revealed that an honest equilibrium would not exist in a monopolistic market, whereas price competition could induce physicians to reveal their types of treatment cost and provide honest treatments; thus, a competitive equilibrium is superior to that of a monopolistic market. The experimental results only partially supported the theoretical predictions, which showed that the cure rate of patients in a competitive environment was higher than that in a monopolistic market, although supplier-induced demand occurred more frequently. In the experiment, the main channel through which competition improved market efficiency was increased patient consultations through low pricing, as opposed to the theory, which stated that competition would lead to physicians' honest treatment of patients through fair prices.DiscussionWe discovered that the divergence between the theory and the experiment stemmed from the theory's reliance on the assumption that humans are rational and self-interested, which means that they are not as price-sensitive as predicted by theory.

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Section: Resultssupporting

confidence: 67%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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How does market competition affect supplier-induced demand? An experimental study

Chen¹,

Pan²,

Ding³

2023

Front. Public Health

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“…The impact of many other institutions-such as competition, reputation, second opinions, price regulation, reduction in insurance coverage, and media-have been investigated to improve market outcomes (see, e.g., Balafoutas, Beck, Kerschbamer, & Sutter, 2013;Balafoutas, Kerschbamer, & Sutter, 2017;Dulleck et al, 2011;Huck, Lünser, Spitzer, & Tyran, 2016;Kerschbamer, Neururer, & Sutter, 2016, 2019Liu, Brynjolfsson, & Dowlatabadi, 2019;Mimra, Rasch, & Waibel, 2016a, 2016bRajgopal & White, 2019;Rasch & Waibel, 2018). In sum, this literature suggests that, theoretically, several institutions should be able to mitigate market inefficiencies in the credence goods market.…”

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confidence: 99%

Monitoring institutions in healthcare markets: Experimental evidence

2021

Self Cite

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This paper investigates the impact of monitoring institutions on market outcomes in health care. Healthcare markets are characterized by asymmetric information. Physicians have an information advantage over patients with respect to appropriate treatments, which they may exploit through over-or under-provision or by overcharging. We introduce two types of costly monitoring: endogenous and exogenous monitoring. When monitoring detects misbehavior, physicians have to pay a fine. Endogenous monitoring can be requested by patients, while exogenous monitoring is performed randomly by a third party. We present a toy model that enables us to derive hypotheses and test them in a laboratory experiment. Our results show that introducing endogenous monitoring reduces the level of undertreatment and overcharging. Even under high monitoring costs, the threat of patient monitoring is sufficient to discipline physicians. Exogenous monitoring also reduces undertreatment and overcharging when performed sufficiently frequently. Market efficiency increases when endogenous monitoring is introduced and when exogenous monitoring is implemented with sufficient frequency. Our results suggest that monitoring may be a feasible instrument to improve outcomes in healthcare markets. K E Y W O R D Scredence goods, laboratory experiment, monitoring, overtreatment, overcharging, physician behavior, undertreatment | INTRODUCTIONA key characteristic of healthcare markets is information asymmetry between patients and physicians. Patients consult physicians for treatment without knowing what type of treatment is needed to cure their illness. When diagnosing patients, physicians learn the true nature of the presenting disease and may exploit their informational advantage over patients through three forms of misbehavior: providing more treatment than necessary (overtreatment), charging for more treatment than provided (overcharging), and providing less treatment than necessary (undertreatment). Patients must trust that their physician is providing them with appropriate treatment, and as such, health services are often referred to as credence goods (Darby & Karni, 1973;Dulleck & Kerschbamer, 2006). Empirical evidence has documented physicians' reactions to financial incentives, suggesting that over-and undertreatment as well as overcharging are prevalent phenomena (

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“… Other experimental studies include Kerschbamer, Neururer and Sutter () and Mimra, Rasch and Waibel () (see Kerschbamer and Sutter, for an overview). …”

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confidence: 99%

What Drives Fraud in a Credence Goods Market? – Evidence from a Field Study

Rasch

Waibel

2017

Oxf Bull Econ Stat

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in March 2015 AbstractThis paper investigates the impact of four key economic variables on an expert firm's incentive to defraud its customers in a credence goods market: the level of competition, the expert firm's financial situation, its competence, and its reputational concerns. We use and complement the dataset of a nationwide field study conducted by the German Automobile Association that regularly checks the reliability of garages in Germany. We find that more intense competition and high competence lower a firm's incentive to overcharge. A low concern for reputation and a critical financial situation increase the incentive to overcharge.Keywords: Asymmetric information; Auto repair market; Credence goods; Expert; Fraud; Overcharging. JEL Classification: D82; L15. * We would like to thank Hans-Jürgen Andreß, Florian Gössl, David Jaeger, Rudolf Kerschbamer, Wanda Mimra, Michael Pfaffermayr, Lamar Pierce, Bettina Rockenbach, Henry S. Schneider, Matthias Sutter, Achim Wambach, Roberto Weber, Achim Zeileis, and seminar audiences in Cologne, Duesseldorf (DICE), Munich (LMU), and Vallendar (WHU) for very helpful comments and discussions. We are also very grateful to Lisa Boxberg, Sarah Dahmen, Nicolas Fugger, and Marlene Scholz who provided excellent research assistance. Part of this research was done while Christian Waibel was visiting the University of Innsbruck. He would like to express his sincere thanks to the University of Innsbruck for its hospitality throughout his stay.

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Price competition and reputation in credence goods markets: Experimental evidence

Cited by 44 publications

References 16 publications

How does market competition affect supplier-induced demand? An experimental study

How does market competition affect supplier-induced demand? An experimental study

Monitoring institutions in healthcare markets: Experimental evidence

What Drives Fraud in a Credence Goods Market? – Evidence from a Field Study

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