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We develop a model in which consumers sequentially search experts for recommendations and prices to treat a problem, and experts simultaneously compete in these two dimensions. Consumers have either zero or a positive search cost. In equilibrium, experts may "cheat" by recommending an unnecessary treatment with positive probabilities, prices follow distributions that depend on a consumer's problem type and the treatment, and consumers search with Bayesian belief updating about their problem types. Remarkably, as search cost decreases, both expert cheating and prices can increase stochastically. However, if search cost is sufficiently small, competition forces all experts to behave honestly.
|Publication status||Published - 15 Aug 2022|
|Name||Munich Personal RePEc Archive (MRPA) Paper|
Bibliographical noteWe thank various seminar and conference participants for helpful comments and suggestions.
Tianle Zhang gratefully acknowledges financial support from the Research Grants Council of the Hong Kong Special Administrative Region, China (Project code: LU13500619).
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