Title: Vertical Differentiation in Credence Goods Market

Speaker: Li Junqian, Associate Researcher of the School of Economics, Shandong University; obtained a doctoral degree in economics from the University of Queensland, Australia in 2022. His research fields are industrial economics and experimental economics. His papers have been published in Journal of Law and Economics and Journal of Economic Behavior and Organization. He serves as an anonymous reviewer for the international journal Journal of Industrial Economics and presides over projects such as the Shandong Provincial Natural Science Foundation.

Abstract: This paper studies treatment provisions in a vertically differentiated market for credence goods. In our baseline model, sellers differ in the quality of their treatment of serious problems. We find that when serious problems are rare, the lower-quality seller's overtreatment rate increases with the quality difference. Moreover, there is an inverted U-shaped relationship between the lower-quality seller's overtreatment rate and the probability of serious problems. When decisions to invest in quality are endogenized, our analysis shows that vertical differentiation is sustainable when the probability of a serious problem is low, and the quality difference is moderate. However, consumer surplus is reduced by vertical differentiation through overtreatments and lower quality. A reduced markup for major treatment not only decreases sellers' incentive to overtreat but also disincentivizes vertical differentiation.

Date & time: 24 April 2025, 12:15 - 13:15

Venue: B408, Zhixin Building, Central Campus, Shandong University