Price Competition and Reputation in Markets for Experience Goods: An Experimental Study
- Author(s)
- Steffen Huck, Gabriele Lünser, Jean-Robert Tyran
- Abstract
We experimentally examine the effects of price competition in markets for experience goods where sellers can build up reputations for quality. We compare price competition to monopolistic markets and markets where prices are exogenously fixed (somewhere between the endogenous oligopoly and monopoly prices). While oligopolies benefit consumers regardless of whether prices are fixed or endogenously chosen, we find that price competition lowers efficiency as consumers pay too little attention to reputation for quality. This provides empirical support to recent models in behavioral IO that assume that consumers may with increasing complexity of the market place focus on selected dimensions of products (see, for example, Spiegler 2006).
- Organisation(s)
- Department of Economics, Vienna Center for Experimental Economics
- External organisation(s)
- University College London, Center for Economic Learning and Social Evolution (ELSE)
- No. of pages
- 24
- Publication date
- 09-2013
- Austrian Fields of Science 2012
- 502047 Economic theory
- Portal url
- https://ucris.univie.ac.at/portal/en/publications/price-competition-and-reputation-in-markets-for-experience-goods-an-experimental-study(3cb339b1-c09c-465f-92bb-95ab2d3374e8).html