Working Paper: CEPR ID: DP17840
Authors: Winand Emons; Severin Lenhard
Abstract: A consumer wants to buy one of three different products. An expert observes which of the three products is the best match for the consumer. Under linear prices a monopolistic expert may truthfully reveal, may partially reveal, and may not reveal at all her information. The outcome is inefficient; moreover, the consumer gets some of the surplus. With a two-part tariff the expert truthfully reveals her information. The outcome is efficient and the expert appropriates the entire surplus. If experts are competitive, they also truthfully reveal; here all the surplus goes to consumers.
Keywords: advice; credence good; horizontal product differentiation
JEL Codes: D18; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| linear pricing (D41) | inefficient market outcomes (D61) |
| monopolistic expert may not reveal information truthfully (D82) | inefficient market outcomes (D61) |
| two-part tariff (L90) | efficient market outcomes (G14) |
| expert truthfully reveals information under two-part tariff (D42) | efficient outcome (D61) |
| competition among experts (D80) | truthful recommendations (Y30) |
| two-part tariff in competitive markets (D43) | surplus goes to consumers (D10) |