Credence Goods Research Articles

Organic products: regulation and market sizing in São Paulo State

This study aimed to systematize and analyze the process of standardization and market certification of organic products, as well as to measure this market in the different segments that make it up in the state of São Paulo, focusing on Organic, Biodynamic and Natural technological standards. A notion of agro-food systems, guided by parameters of sustainability (economic, environmental and sociocultural) was used as reference analysis. For measuring the market, previous studies were used, from which estimates were developed with information collected in the field. Interviews were carried out with 5 certification companies, 20 producers, 4 distributors and 105 consumers in different regions of São Paulo State. As a result of research, a strong growth of supply and demand of organic products can be highlighted, with relative price stability. Given the problems observed in the marketing of these credence goods, the 2011 incoming new legislation may help in the organization and regulation of the sector as a whole.

The Hidden Costs of Tax Evasion: Collaborative Tax Evasion in Markets for Expert Services

In markets where transactions are governed by contractual incompleteness, revealed intentions to evade taxes may affect market performance. We experimentally examine the impact of tax evasion attempts on the performance of credence goods markets, where contractual incompleteness results from asymmetric information on the welfare maximizing quality of the good. We find that tax evasion attempts – independently of whether they are successful or not – lead to efficiency losses in the form of too low quality and less frequent trade. Thus, shadow economies induce an excess burden not only by hampering the collection of tax revenues, but also by reducing market efficiency.

Politicians as experts, electoral control, and fiscal restraints

We propose an argument for fiscal restraints that is based on the premise that the services of politicians are credence goods. Politicians are experts who specialize in observing the true state of the economy. Budget maximizing politicians are better informed than the electorate about the level of public spending necessary to manage public affairs. Voters, who are able to observe the size of the budget but not the necessary level of spending, affect the government's spending behavior via electoral control. A fiscal restraint limits the maximum spending a government can choose. We identify conditions under which such a fiscal restraint improves voter welfare and discuss the role of the political opposition as a second expert in situations in which the state of the economy requires a level of spending which exceeds the fiscal restraint.

Car mechanics in the lab––Investigating the behavior of real experts on experimental markets for credence goods

Credence goods, such as car repairs or medical services, are characterized by severe informational asymmetries between sellers and consumers, leading to fraud in the form of provision of insufficient service (undertreatment), provision of unnecessary service (overtreatment) and charging too much for a given service (overcharging). Recent experimental research involving a standard (student) subject pool has examined the influence of informational and market conditions on the type and level of fraud. We investigate whether professional car mechanics – as real sellers of credence goods – react in the same way to changes in informational and institutional constraints. While we find qualitatively similar effects in the fraud dimensions of undertreatment and overcharging for both subject pools, car mechanics are significantly more prone to supplying unnecessary services in all conditions, which could be a result of decision heuristics they learned in their professional training.

On the role of verifiability and commitment in credence goods markets

A client has a problem, but does not know whether it is serious or minor. She consults an expert who can correctly diagnose and fix her problem. This paper characterizes the equilibrium pricing and recommendation strategies of an expert under the assumptions that i) the type of treatment is verifiable by the client, ii) the client has the option of rejecting any treatment recommendation, and iii) the expert is not liable for the outcome of the treatment. It is found, for any parameter configuration, that there exist equilibria in which the expert makes fraudulent recommendations resulting in inefficient treatment. The market outcome is compared with that under an alternative market environment in which the expert is liable for treatment outcome but the type of treatment performed is non-verifiable. It is shown that for some parameter configurations the equilibrium is more efficient when liability is in place than when the treatment is verifiable. These findings stand in sharp contrast to the received wisdom that the market outcome under verifiability of treatment is efficient while the market outcome under liability for outcome is not. Finally, this paper shows that the existence of some honest experts may induce more fraudulent behavior by opportunistic experts.

The effects of word‐of‐mouth consistency on persuasiveness

AbstractWord of mouth (WOM) consistency can be readily observed in online product evaluations. Previous studies on the influence of WOM consistency on purchase intentions have showed contradictory results. In this research, we identify how stronger persuasiveness of WOM is achieved when consistency, product type, and review content work together. Study 1 shows that regarding search goods, highly consistent factual reviews are more persuasive. Study 2 shows that concerning experience goods and credence goods, highly consistent experiential reviews have greater persuasiveness. However, low WOM consistency can also achieve stronger persuasiveness under some circumstances. Moreover, in Study 3, we replicate our findings and explore the possible underlying mechanism. Copyright © 2014 ASAC. Published by John Wiley & Sons, Ltd.

Accountability.org: Online Disclosures by U.S. Nonprofits

Why do some nonprofits signal their respect for accountability via unilateral website disclosures? We develop an Accountability Index to examine the websites of 200 U.S. nonprofits ranked in the Chronicle of Philanthropy’s 2010 “Philanthropy 400.” Our intuition is that nonprofits recognize that the “non-distributional constraint” by itself may not generate sufficient trust. We expect nonprofits’ incentives for website disclosures will be shaped by their organizational and sectoral characteristics. Our analyses suggest that nonprofits appearing frequently in newspapers disclose more accountability information while nonprofits larger in size disclose less. Religion-related nonprofits tend to disclose less information, suggesting that religious bonding enhances trust and reduces incentives for self-disclosure. Nonprofits in the health sector disclose less information, arguably because governmental regulations in which they are embedded reduce marginal benefits from voluntary disclosures. Education nonprofits, on the other hand, tend to disclose more accountability information perhaps because they supply credence goods.

CSR into (new) perspective

Purpose–This paper aims to provide a theoretical approach of Corporate Social Responsibility (CSR) in order to assess whether CSR will develop as a concept pushing efficiently for more de facto social responsibility or will become a pure marketing artefact. The trade-off between the development of CSR behaviour and lobbying over regulations is a key element that will influence the evolution of CSR. The result is that if the world consolidates or if it tends towards multilateralism to a large extent, then CSR is less likely to have an efficient impact.Design/methodology/approach–Theoretical approach based on three fields: credence goods, greenwashing and political economy.Findings–The coordination is harder for lobbies in the more multilateral scenario. The more politically powerful group would lose its influence on the decision body in the multipolar scenario. If lobbies keep influencing their state governments, the efficiency would also be reduced in the regionalization or multipolar scenarios. The easiness of the greenwashing strategy is also crucial in order to determine the possible evolution of the CSR as a real commitment that benefits environment and society.Research limitations/implications–Countries may take advantage of CSR by offering an advantage to firms willing to develop CSR thanks to public regulations if greenwashing is easy and if the evolution of the world that prevails is similar to the tripolar or regionalization scenarios. This may also occur under the multipolar scenario but it would necessitate an effective international coordination.Originality/value–This is the first work that brings together the strategic behaviour of firms with respect to Corporate Social Responsibility and political economy determinants. The predicted evolutions of these two features according to the degree of multilateralism as well as how they are intertwined are also novelties of this paper.

Improving Eco-labelling as an Environmental Policy Instrument: Knowledge, Trust and Organic Consumption

Eco-labels have an import role in promoting green consumption since most eco-labelled products are credence goods, implying that the valued process attributes they contain are not observable to the consumer even after purchase or consumption. Therefore, the consumers rely heavily on eco-labels as a reassurance that these attributes are actually delivered. We argue that the label will only have the desired effect if the consumers know the production standards underpinning it and have trust in the label. We test this argument using organic food as our example. The empirical results obtained on the basis of our analysis of Danish purchasing data on actual purchases combined with detailed survey data show that the higher the level of knowledge of labelling attributes and the higher the degree of trust in the label, the more likely consumers are to buy organic food.

TO EVALUATE THE CHANGING ROLE OF MARKETING OF (BOLLYWOOD) FILMS AND ITS IMPACT ON BOX OFFICE PERFORMANCE IN OPENING WEEKEND

The Study is designed to investigate the changing role of Marketing of (Bollywood) films and its impact on box office collection in opening weekend. This paper consists of research design as descriptive because it is structured with clearly stated hypothesis, investigative questions and discovery of association among variables. The study helped to explore Bollywood film industry in detail and helps the researcher to find out new and innovative ways to promote the 'credence goods' like films. The study also helps to reach into logical conclusion that there is significant impact of Marketing of films on Box office collection in Opening Weekend. The findings of this can provide some relevant scope for Marketers to have good budget for promotion and publicity for films, eventually that lead into successful box office collection in opening weekend itself.

Certification of Credence Goods with Consideration of Consumers’ Learning Ability

The paper constructs a two-period and an infinitely repeated signaling model for the certification of credence goods, with consideration of the learning ability of consumers. Based on the analysis of the existing conditions of separating equilibrium under different situations, results reveal that the certification cost has a significant influence on the separating equilibrium. The range of certification cost for a separating equilibrium is positively related to the usurp cost and the consumers’ learning ability and is negatively related to the difference in the production cost. Compared with that in a two-period model, the range of the certification cost for a separating equilibrium is greater in the infinitely repeated model and is positively related to the discount coefficient.

Adverse Selection Revisited in the Context of Food Safety

Adverse selection is expected to occur with agricultural products because they are credence goods with respect to food safety. However, these products’ safety levels are usually higher than the safety standards set by public agencies. This study suggests reasons for this phenomenon through theoretical examinations and numerical simulations, producing several results. First, even if we suppose that the cost functions of firms producing higher-quality products are in the upper regions, not only can firms producing the lowest-quality products remain in a ‘market for lemons’ but other firms can as well. Second, if we relax the above assumption about cost functions, even firms producing the highest-quality products can remain in a lemon market, while firms producing middle-quality products can increase their sales. Moreover, the WTP at some stage can be more than the initial WTP.

Are they listening? Designing online recommendations for today's consumers

PurposeThe purpose of this paper is to study the use of online recommendation systems on e‐commerce sites is which becoming more common as marketers recognize their potential to improve their own operations as well as consumers' shopping experiences. Since some consumers question the credibility of these systems, this study compares responses to such systems (classified based on their source into seller and third party systems) with responses to recommendations coming directly from other consumers. The latter may also be better suited for consumers today since many of them utilize direct information from social media on a daily basis. Past research indicates that reactions to such recommendations may depend on the types of goods they describe and therefore this study also tests whether consumer responses vary with types of goods. The study examines consumer reactions to recommendations designed for search, experience, and credence goods. Finally, this study also explores the most desired features of recommendations to help marketers come up with the most effective recommendations that help facilitate purchasing decisions.Design/methodology/approachThe study surveys a convenience sample of 202 undergraduate students to test these objectives. It was a 3 (product types) by 3 (recommendation types) factorial design with multiple dependent variables and three covariates.FindingsThe study reveals that, irrespective of the product type, consumers react differently to the three types of recommendations that are tested. This study shows that consumers have the most positive attitudes and most frequently utilize recommendations coming directly from other consumer. This suggests that more attention should be directed to these recommendations in marketing theory and practice. Consumers also hold more positive attitudes towards third‐party recommendation systems than recommendation systems coming from the seller. They also have more positive reactions toward recommendations designed for search and experience goods rather than credence products. Finally, the study also examines the usefulness of different characteristics of these recommendations to help online managers develop most effective recommendations online and finds that it varies with different types of recommendations and products for which recommendations are used.Originality/valueIn addition to the recommendation systems that have been explored in the past (seller and third party systems), the study examines reactions to recommendations coming directly from other consumers, as these recommendations may be better suited for today's audiences. The study shows which recommendation type is best received and most frequently used online. It also tests reactions to recommendations designed for different types of goods. This study includes credence goods, in addition to search and experience products, since consumer reactions to recommendations designed for credence goods have not been yet explored in the past research. It also found that recommendations are better received for goods with a higher number of search features. Finally, the study explores the specific features of different recommendation types and based on the findings proposes how these online recommendations should be structured to be most effective.

Antecedent of purchase intention: online seller reputation, product category and surcharge

PurposeThis paper aims to examine the antecedent of purchase intention: online seller reputation, product category and surcharge.Design/methodology/approachThis paper uses five experimental designs to explore the seller reputation, product category and surcharge effects in Internet shopping. The authors chose one seller of low reputation and one seller of high reputation from Yahoo Mall. ANOVA are used to evaluate the results.FindingsSellers of high reputation can post higher surcharges to increase the total price paid by the buyer, but sellers of low reputation cannot do so (experiment 1). Moreover, partitioned price will decrease purchase intention for sellers of low reputation more than for sellers of high reputation (experiment 2). Consumers take the longest time to make purchasing decisions when buying credence goods (experiment 3) or buying from sellers of low reputation (experiment 4). The effect of surcharge levied by sellers of low reputation is weakened for consumers with low (vs high) shipping‐charge skepticism (experiment 5).Practical implicationsThis study is helpful to online sellers if they can identify their reputation, product category and those consumers who have shipping‐charge skepticism, they can create extra profit through surcharge practice.Originality/valueThe authors’ investigation extends the literature on consumers’ price processing by identifying the important moderators (seller reputation, product category, and elaboration) and probing into the decision process (via the response time). The results suggest prescriptive strategies for online sellers.

Unobservable service quality and moral hazard: the case of impartial business valuations

PurposeThe purpose of this paper is to discuss agency relationships occurring in an impartial business valuation setting. In particular, it shows how monitoring and sanctioning mechanisms, reputational concerns, and competition may affect the quality of valuation services rendered.Design/methodology/approachThe paper reviews findings from auditing research and from the economic theory on credence goods, and applies them to an impartial business valuation setting.FindingsImpartial valuation experts face incentives to either overwork, or underwork and overcharge their client. Which type of moral hazard is more likely to occur depends on the degree of competition among the agents. While market concentration gives rise to overworking, competition promotes underworking and overcharging. Due to regulatory differences, this effect is more pronounced in the valuation services market than in the auditing industry.Research limitations/implicationsThe results imply that a client may be able to infer how to set up an effective monitoring and sanctioning system from the degree of competition among the impartial valuation experts. Future research should empirically validate the theoretical findings, and explore the relationship between service quality and internal governance structures of business valuation firms.Practical implicationsThe results underline the necessity of an effective valuation quality assurance system set up by the client. They are thus relevant for clients, but also for regulatory bodies seeking to ensure the integrity of the valuation services market, and for valuation service providers striving to improve their corporate governance system.Originality/valueThe paper offers a new perspective on the reliability of business values determined by impartial experts. It emphasises the potential influence of the experts' competitive environment on service quality, and it shows how to design an effective valuation quality assurance system.

Strategic Corporate Social Responsibility Activities and Corporate Governance in Imperfectly Competitive Markets

We investigate the incentives of firms' owners to commit voluntarily to corporate social responsibility (CSR) activities in an oligopolistic market. The socially responsible attributes attached to products are considered as credence goods, with consumers forming expectations about their existence and level. We show that hiring an ‘individually’ socially responsible CEO and delegating to him the CSR effort and market decisions acts as a commitment device for the firm's owners and credibly signals to consumers that the firm will undertake the ‘missioned’ CSR activities. We also find that CSR activities are welfare enhancing for consumers and firms and thus, they should be encouraged. Copyright © 2013 John Wiley & Sons, Ltd.

Credence goods, experts and risk aversion

The existing literature on credence goods and expert services has overlooked the importance of risk aversion. In this paper we extend a standard expert model of credence goods with verifiable service quality by considering risk-averse consumers. Our results show that the presence of risk aversion reduces the expert’s incentive to invest in diagnosis and may thus lead to consumers’ mistreatment.

Shaping beliefs in experimental markets for expert services: Guilt aversion and the impact of promises and money-burning options

In a credence goods game with an expert and a consumer, we study experimentally the impact of two devices that are predicted to induce consumer-friendly behavior if the expert has a propensity to feel guilty when he believes that he violates the consumerʼs payoff expectations: (i) an opportunity for the expert to make a non-binding promise; and (ii) an opportunity for the consumer to burn money. In belief-based guilt aversion theory the first opportunity shapes an expertʼs behavior if an appropriate promise is made and if it is expected to be believed by the consumer; by contrast, the second opportunity might change behavior even though this option is never used along the predicted path. Experimental results confirm the behavioral relevance of (i) but fail to confirm (ii).

Price Competition and Reputation in Credence Goods Markets: Experimental Evidence

In credence goods markets, experts have better information about the appropriate quality of treatment than their customers. Because experts provide both the diagnosis and the treatment, there is opportunity for fraud. We experimentally investigate how the intensity of price competition and the level of customer information about past expert behavior infl uence experts' incentives to defraud their customers when experts can build up reputation. We show that the level of fraud is significantly higher under price competition than when prices are fi xed, as the price decline under a competitive-price regime inhibits quality competition. More customer information does not necessarily reduce the level of fraud.

An Empirical Study on the impact of product type on Customer Satisfaction and Repurchase of Internet shopping mall of Credence goods

An Empirical Study on the impact of product type on Customer Satisfaction and Repurchase of Internet shopping mall of Credence goods