Competition in a Market for Informed Experts' Services

Abstract

This article investigates how information asymmetries affect the organization of markets in which sellers are also experts who determine customers' needs. It examines how customers' search for multiple opinions and reputation considerations each play a role in disciplining experts. It shows that customer search may give rise to an equilibrium in which experts specialize in different levels of the service. It discusses the effect of the search-cum-diagnosis costs on the market's organization. experts are more likely to be disciplined by customer search or by reputation according to whether these costs are lower or higher. It also shows that when experts are liable to make diagnosis errors, there is a negative search externality that tends to raise prices.