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Costly customers' mistakes in credence goods markets

Costly customers' mistakes in credence goods markets
Datum:

Oct 20th, 2016

Referent:

Matthias Sutter (University of Cologne)

Abstract:

Credence goods markets are plagued by asymmetric information between expert sellers and customers. Most importantly, customers don’t know what type of quality they would have needed even ex post. This allows for fraudulent behavior on the sellers’ side, including overprovision of services and overcharging. We present a field experiment in the market for computer repairs, in which we let (undercover) customers bring a malfunctioning computer to a repair shop, and dropping remarks about the presumed source of the problem – once the remark being correct, once incorrect – and about the customer’s expectation about the repair costs. We find that both types of remarks can dramatically increase the repair costs, but they are futile to limit the repair price in comparison to a control condition without any hints from the customer’s side.