Podcast
Questions and Answers
What is the key difference between search goods and experience goods?
What is the key difference between search goods and experience goods?
- Search goods are more easily found online, while experience goods are primarily sold in physical stores.
- Experience goods have readily available information, while search goods require more effort to gather information about.
- Consumers can assess the characteristics of search goods before purchase, while experience goods are assessed after purchase. (correct)
- Search goods have lower prices, while experience goods have higher prices.
How does the concentration of markets typically relate to experience goods?
How does the concentration of markets typically relate to experience goods?
- Markets for experience goods tend to be less concentrated due to easy evaluation.
- Markets for experience goods tend to be more concentrated because consumers rely on a few trusted brands after limited experimentation. (correct)
- The concentration of experience goods markets is independent of consumer behavior.
- Experience goods markets are equally concentrated as search goods markets.
What is the role of consumer experimentation (trying different brands) in markets for experience goods?
What is the role of consumer experimentation (trying different brands) in markets for experience goods?
- Experimentation decreases as consumers gain prior information. (correct)
- Consumers randomly experiment, regardless of prior information.
- Experimentation leads to a uniform distribution of consumers across all available brands.
- Experimentation has no effect on consumer preference.
In the context of market structure, how does the number of brands tested by consumers influence monopoly power?
In the context of market structure, how does the number of brands tested by consumers influence monopoly power?
Which of the following is an institutional response that can help consumers make better decisions regarding experience goods?
Which of the following is an institutional response that can help consumers make better decisions regarding experience goods?
How does product variety relate differently to search goods compared to experience goods?
How does product variety relate differently to search goods compared to experience goods?
How do consumers typically assess the quality of credence goods?
How do consumers typically assess the quality of credence goods?
What is a primary concern in markets for credence goods?
What is a primary concern in markets for credence goods?
Why are credence goods more susceptible to market failure compared to search or experience goods?
Why are credence goods more susceptible to market failure compared to search or experience goods?
What effect does the internet have on search costs for search goods?
What effect does the internet have on search costs for search goods?
How does the internet impact the assessment of experience goods?
How does the internet impact the assessment of experience goods?
What issue do consumers face despite increased market transparency?
What issue do consumers face despite increased market transparency?
How does 'pattern of geographical shop location' help consumers?
How does 'pattern of geographical shop location' help consumers?
Which of the following is an example of a credence good problem?
Which of the following is an example of a credence good problem?
What factor determines effective search?
What factor determines effective search?
Asymmetry between producer/seller and consumer/buyer exists concerning what?
Asymmetry between producer/seller and consumer/buyer exists concerning what?
What statement is most accurate about a producer/seller?
What statement is most accurate about a producer/seller?
What is a key characteristic of "experience goods?"
What is a key characteristic of "experience goods?"
What is one of the main implications for the market structure of experience goods?
What is one of the main implications for the market structure of experience goods?
Fill in the blank: Consumers search for their preferred products, and have experience with n brands to determine...
Fill in the blank: Consumers search for their preferred products, and have experience with n brands to determine...
Flashcards
Information Asymmetry
Information Asymmetry
Information asymmetry between the seller and buyer regarding product details.
Search Good
Search Good
A product whose characteristics are easily known before purchase.
Experience Good
Experience Good
A product whose characteristics are difficult to assess before purchase; quality is found after use.
Credence Good
Credence Good
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Concentrated Markets
Concentrated Markets
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Consumer Search
Consumer Search
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Information Overload
Information Overload
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Word of Mouth
Word of Mouth
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Advertising
Advertising
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Credence Goods Quality
Credence Goods Quality
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Hidden Characteristics
Hidden Characteristics
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Market Failure
Market Failure
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Online Search
Online Search
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Study Notes
- Information asymmetry exists between producers/sellers and consumers/buyers regarding product details.
- Producers/sellers generally possess thorough knowledge of their product's characteristics.
- Products vary in terms of the extent of information consumers have about them.
Search Goods
- Consumers are aware of product characteristics before making a purchase.
Experience Goods
- Consumers can only assess characteristics after purchase, leading to increased search costs.
Implications for Market Structure
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Markets for experience goods tend to be more concentrated
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Consumers explore n brands to identify their preferred product.
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These experiments are usually informed by prior information, not random.
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A relationship forms between brands experimented with by different consumers.
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The quantity of brands in the market is affected by the number of experiments.
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Fewer experiments lead to higher consumer concentration among fewer brands.
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Greater number of brands tested results in lower monopoly power.
Institutional Responses
- Word-of-mouth referrals, advice from friends, and online reviews influence consumers.
- The pattern of geographical shop locations matters.
- Clustering is less important for experience goods.
- Inspection is important for search goods.
- Advertising serves as a signaling mechanism.
- Labels like "Made-in-Germany" play a role.
- Long-term business relationships matter.
- Product variety is more important for search goods.
Credence Goods
- Consumers cannot ascertain quality through experience alone without incurring further costs.
- Credence characteristics remain hidden even after purchase like ingredients.
- Many products exhibit a combination of search, experience, and credence characteristics.
- Market failure can easily occur in credence goods markets without regulation.
Problems in Markets for Credence Goods
- Quality provision is a problem.
- Issues include overtreatment and undertreatment.
- Overcharging is a concern.
Credence Goods Examples
- In healthcare, financial incentives can affect efficiency versus quality.
- Taxi drivers may take longer routes for non-local customers.
- Half of car repairs in the U.S. are unnecessary.
Impact of Digital Markets
- The internet reduces search costs.
- Consumers can compare prices and characteristics of many search goods simultaneously.
- Customer reviews aid in evaluating experience goods, some tested immediately (e.g., software).
- Markets become more transparent.
- There’s a risk of choice and information overload.
- Effective search requires sufficient and quality information, along with comparison of alternatives.
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