Search and competition in expert markets

Yiran CAO; Yongmin CHEN; Yucheng DING; Tianle ZHANG

Search and competition in expert markets

Yiran CAO, Yongmin CHEN, Yucheng DING, Tianle ZHANG

Lingnan University

Research output: Working paper › Working paper series

Abstract

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.

Original language	English
Publication status	Published - 15 Aug 2022

Publication series

Name	Munich Personal RePEc Archive (MRPA) Paper
No.	114170

Bibliographical note

We 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).

Keywords

search
experts
competition
credence good

Access to Document

https://mpra.ub.uni-muenchen.de/id/eprint/114170

Consumer Search and Product Liability (消費者搜索和產品責任)
ZHANG, T. (PI) & DING, Y. (CoI)
Research Grants Council (HKSAR)
1/01/20 → 31/12/22
Project: Grant Research

Cite this

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N2 - 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.

AB - 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.

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Search and competition in expert markets

Abstract

Publication series

Bibliographical note

Keywords

Access to Document

Projects

Consumer Search and Product Liability (消費者搜索和產品責任)

Cite this