English, Article, Journal or magazine article edition: A Theory of Fraud and Over-Consumption in Experts Markets Ingela Alger; Francois Salanie

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Bookmark: http://trove.nla.gov.au/version/73193
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • A Theory of Fraud and Over-Consumption in Experts Markets
Author
  • Ingela Alger
  • Francois Salanie
Physical Description
  • preprint
Notes
  • Consumers often have to rely on an expert's diagnosis to assess their needs. If the expert is also the seller of services, he may use his informational advantage to induce over-consumption. Empirical evidence suggests that over-consumption is a pervasive phenomenon in experts markets. We prove the existence of equilibrium over-consumption in an otherwise purely competitive model. This market failure results from the freedom of consumers to turn down an expert's recommendation: experts defraud consumers in order to keep them uninformed, as this deters them from seeking a better price elsewhere. Our model also yields predictions on the diagnosis price that are in line with stylized facts, and provides a theory for why risk-neutral consumers would demand extended warranties on durables.
  • experts, fraud, over-consumption, extended warranties
  • RePEc:boc:bocoec:495
Language
  • English
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