Transparency in Markets for Experience Goods: Experimental Evidence

Abstract

We propose an experimental design to investigate the role of information disclosure in the market for an experience good. The market is served by a duopoly of firms that choose both the quality and the price of their product. Consumers differ in their taste for quality and choose from which firm to buy. We compare four different treatments in which we vary the degree to which consumers are informed about quality. Contrary to theoretical predictions, firms do not differentiate quality under full information. Rather, both tend to offer products of similar, high quality, entailing more intense price competition than predicted by theory. Under no information, we observe a "lemons" outcome where quality is low. At the same time, firms manage to maintain prices substantially above marginal cost. In two intermediate treatments, quality is significantly higher than the no-information level, and there is evidence that prices become better predictors of quality. Taken together these findings suggest that information disclosure is a more effective tool to raise welfare and consumer surplus than theory would lead one to expect. (JEL L15, C91, D82)

Voluntary Disclosure and Earnings Expectations in Multi‐level Marketing

“…Disclosure of income for MLM distributors may be viewed as disclosure of negative information in situations where earnings are quite low or zero for the majority of participants. While it is difficult to forecast how MLM disclosure adoption will change over time or predict the dynamic effects of disclosure on the industry (Craswell ; Delmas, Montes‐Sancho, and Shimshack ; Henze, Schuett, and Sluijs ), prior research suggests that there is no guarantee that adoption rates will increase or that voluntary disclosures will be designed or delivered in a way that maximizes market efficiency.…”

Market Transparency, Adverse Selection, and Moral Hazard

“…In the context of competition policy, Henze, Schuett, and Sluijs (2013) conduct an experiment in which they vary the extent to which consumers are informed about quality. They find effects of this on the quality firms provide in equilibrium, and conclude that information disclosure is a more effective tool to raise welfare and consumer surplus than theory would lead one to expect.…”

Quality competition and hospital mergers—An experiment

“…Although there are some experimental studies investigating mergers (e.g., Fonseca & Normann, ; Huck, Konrad, Müller, & Normann, ) or quality competition (e.g., Henze, Schuett, & Sluijs, ), in a nonhealth context, they do not account for both quality competition and mergers, nor do they account for the particularities of hospital markets such as altruistic providers. There also are various health economic experiments investigating the role of altruism or professional norms for medical provision behaviour on an individual level (Brosig‐Koch, Hehenkamp, & Kokot, ; Brosig‐Koch, Hennig‐Schmidt, Kairies‐Schwarz, & Wiesen, ; Brosig‐Koch, Hennig‐Schmidt, Kairies‐Schwarz, & Wiesen, ; Godager & Wiesen, ; Hennig‐Schmidt, Selten, & Wiesen, ; Kesternich, Schumacher, & Winter, ).…”

“…Huck et al (2007), Fonseca and Normann (2008), or quality competition, see e.g. Henze (2015), in a non-health context, they do neither account for both quality competition and mergers, nor for the particularities of hospital markets such as altruistic providers. On the other hand, there are various health economic experiments investigating the role of altruism or professional norms for medical provision behavior on an individual level (Hennig-Schmidt et al, 2011;Godager and Wiesen, 2013;Brosig-Koch et al, 2015a,b;Kesternich et al, 2015).…”