TY - JOUR
T1 - Too Much or Too Little? Price Discrimination in a Market for Credence Goods
AU - Dulleck, Uwe
AU - Kerschbamer, Rudolf
AU - Konovalov, Alexander
N1 - Funding Information:
An earlier version of this manuscript circulated under the title “Price Discrimination via the Choice of Distribution Channels.” We thank Douglas Beatton, a former managing director of the sales department of HP, for helpful discussions on the development of the IT industry. Financial support from the Austrian Science Fund (FWF) through special research area grant SFB F63, as well as through grant numbers P22669, P26901, and P27912; and from the Australian Research Council (ARC) through grant number DP110103653 is gratefully acknowledged.
Funding Information:
A core characteristic of credence goods is that an expert seller is better informed than her customer about the quality that fits the customer’s needs best. Important * Uwe Dulleck: Faculty of Business, Government and Law, University of Canberra, Australia; Centre for Behavioural Economics, Society and Technology, QUT; Crawford School of Public Policy, ANU; CESifo. Rudolf Kerschbamer (corresponding author): Department of Economics, University of Innsbruck, Austria. Alexander Konovalov: Department of Economics, University of Gothenburg, Sweden. An earlier version of this manuscript circulated under the title “Price Discrimination via the Choice of Distribution Channels.” We thank Douglas Beatton, a former managing director of the sales department of HP, for helpful discussions on the development of the IT industry. Financial support from the Austrian Science Fund (FWF) through special research area grant SFB F63, as well as through grant numbers P22669, P26901, and P27912; and from the Australian Research Council (ARC) through grant number DP110103653 is gratefully acknowledged.
Publisher Copyright:
© 2023 Dulleck/Kerschbamer/Konovalov CC BY 4.0.
PY - 2023/10
Y1 - 2023/10
N2 - In markets for credence goods, sellers are better informed than their customers about the quality that yields the highest surplus from trade. This paper studies second-degree price discrimination in such markets. It shows that discrimination regards the amount of advice offered to customers and that it leads to a different distortion depending on the main source of heterogeneity among consumers. If the heterogeneity is mainly in the expected cost of efficient service, the distortion involves overprovision of quality. By contrast, if consumers differ mainly in the surplus generated whenever the consumer’s needs are met, the inefficiency involves underprovision of quality.
AB - In markets for credence goods, sellers are better informed than their customers about the quality that yields the highest surplus from trade. This paper studies second-degree price discrimination in such markets. It shows that discrimination regards the amount of advice offered to customers and that it leads to a different distortion depending on the main source of heterogeneity among consumers. If the heterogeneity is mainly in the expected cost of efficient service, the distortion involves overprovision of quality. By contrast, if consumers differ mainly in the surplus generated whenever the consumer’s needs are met, the inefficiency involves underprovision of quality.
KW - credence goods
KW - discounters
KW - distribution channels
KW - experts
KW - price discrimination
UR - http://www.scopus.com/inward/record.url?scp=85185676876&partnerID=8YFLogxK
U2 - 10.1628/jite-2023-0034
DO - 10.1628/jite-2023-0034
M3 - Article
AN - SCOPUS:85185676876
SN - 0932-4569
VL - 180
SP - 106
EP - 143
JO - Journal of Institutional and Theoretical Economics
JF - Journal of Institutional and Theoretical Economics
IS - 1
ER -