DP4155 Price Discrimination in Markets for Experts' Services

Author(s): Uwe Dulleck, Rudolf Kerschbamer
Publication Date: December 2003
Keyword(s): credence goods, experts, fraud, price discrimination
JEL(s): D40, D82, L15
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4155

This Paper studies the consequences of price discrimination in a market for experts? services. In the case of experts markets, where the expert observes the intervention that a consumer needs to fix his problem and also provides a treatment, price discrimination proceeds along the dimension of quality of advice offered. High quality advice and appropriate treatment is provided to the most profitable market segment only. Less profitable consumers are induced to demand either unnecessary or insufficient procedures. The welfare consequences of price discrimination are ambiguous: On the one hand, price discrimination increases the number of consumers that get an intervention. On the other hand, some consumers that are efficiently served under non-discrimination get the wrong procedure if the expert can discriminate among customers.