The economics of credence goods: an experiment on the role of liability, verifiability, reputation, and competition
This is the experimental test of the framework Dulleck and Kerschbamer had reviewed five years earlier. Dulleck and Kerschbamer, with Matthias Sutter, ran a credence goods game with 936 participants and published it in the American Economic Review, varying the four things theory says should discipline such a market: liability, verifiability, reputation and competition. Theory predicted that either liability or verifiability would be enough to produce an efficient market. What the experiment found was that liability had a crucial effect and verifiability at best a minor one, that reputation had little influence, which is what the theory had predicted for the setting as designed, and that competition between sellers drove prices down and produced the maximum amount of trade without producing higher efficiency, so long as liability was being violated. The standing is good for a laboratory result: a large sample for an economics experiment, a published test of a prediction the same authors had set out in print beforehand, and a finding that separates the four candidate remedies rather than endorsing them together. The limit is the one every such game carries. These are participants in a defined laboratory market with a known payoff structure, not patients or motorists, so the result establishes which mechanism works in the model and not how large the effect is in any real trade.
This is the experimental test of the framework Dulleck and Kerschbamer had reviewed five years earlier. Dulleck and Kerschbamer, with Matthias Sutter, ran a credence goods game with 936 participants and published it in the American Economic Review, varying the four things theory says should discipline such a market: liability, verifiability, reputation and competition. Theory predicted that either liability or verifiability would be enough to produce an efficient market. What the experiment found was that liability had a crucial effect and verifiability at best a minor one, that reputation had little influence, which is what the theory had predicted for the setting as designed, and that competition between sellers drove prices down and produced the maximum amount of trade without producing higher efficiency, so long as liability was being violated. The standing is good for a laboratory result: a large sample for an economics experiment, a published test of a prediction the same authors had set out in print beforehand, and a finding that separates the four candidate remedies rather than endorsing them together. The limit is the one every such game carries. These are participants in a defined laboratory market with a known payoff structure, not patients or motorists, so the result establishes which mechanism works in the model and not how large the effect is in any real trade.
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936 participants. Theory predicts liability or verifiability yield efficiency; they find liability has a crucial effect and verifiability at best a minor one; reputation has little influence, as predicted; seller competition drives down prices and yields maximal trade but does not lead to higher efficiency as long as liability is violated. Verified at the published record 2026-10-05. doi:10.1257/aer.101.2.526
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Dulleck, U., Kerschbamer, R., & Sutter, M. (2011). 'The economics of credence goods: an experiment on the role of liability, verifiability, reputation, and competition.' American Economic Review, 101(2), 526-555. 936 participants. Theory predicts liability or verifiability yield efficiency; they find liability has a crucial effect and verifiability at best a minor one; reputation has little influence, as predicted; seller competition drives down prices and yields maximal trade but does not lead to higher efficiency as long as liability is violated. Verified at the published record 2026-10-05. doi:10.1257/aer.101.2.526