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Price competition and reputation in markets for experience goods: an experimental study
Author(s) -
Huck Steffen,
Lünser Gabriele K.,
Tyran JeanRobert
Publication year - 2016
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12120
Subject(s) - monopolistic competition , oligopoly , competition (biology) , reputation , microeconomics , economics , quality (philosophy) , mid price , industrial organization , business , price level , monetary economics , monopoly , cournot competition , ecology , social science , philosophy , epistemology , sociology , biology
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. Although 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 industrial organization that assume that consumers may, with increasing complexity of the marketplace, focus on selected dimensions of products .