What drives fraud in a credence goods market? - Evidence from a field experiment

Posted by D. Daniel Sokol

Alexander Rasch (University of Cologne) and Christian Waibel (CGS, University of Cologne) ask What drives fraud in a credence goods market? - Evidence from a field experiment.

ABSTRACT: This paper investigates the impact of four key economic variables on an expert firm's incentive to defraud its customers in a credence goods market: the level of competition, the expert firm's financial situation, its competence, and its reputational concerns. We use and complement the dataset of a nationwide field experiment conducted by the German Automobile Association that regularly checks the reliability of garages in Germany. We find that more intense competition and high competence lower firms' incentive to overcharge. A low concern for reputation and a critical financial situation increase the incentive to overcharge.