[UTMD-101] Search in Credence Goods Markets (by Ting Liu, Takahiro Moriya)

Ting Liu, Takahiro Moriya

We study consumer search in markets for horizontally differentiated expert services. A consumer faces a problem of unknown severity and consults experts for diagnosis and treatment. Because experts differ in match value, consumers search not only for honest recommendations but also for a better match. We show that an honest equilibrium can arise when search costs are sufficiently low, whereas in markets with homogeneous experts, any positive search cost eliminates honesty. Thus, horizontal differentiation provides a novel mechanism through which consumer search disciplines expert conduct. We also show that improving the search pool can unintentionally increase expert cheating.