Journal Article

The Market for Quacks

Ran Spiegler

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 4, pages 1113-1131
Published in print October 2006 | ISSN: 0034-6527
Published online October 2006 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2006.00410.x
The Market for Quacks

More Like This

Show all results sharing these subjects:

  • Economics of Health
  • Market Structure and Pricing

GO

Show Summary Details

Preview

A group of n “quacks” plays a price-competition game, facing a continuum of “patients” who recover with probability α, whether they acquire a quack's “treatment”. If patients chose rationally, the market would be inactive. I assume, however, that patients choose according to a boundedly rational procedure, which reflects “anecdotal” reasoning. This element of bounded rationality has significant implications. The market for quacks is active, and patients suffer a welfare loss which behaves non-monotonically w.r.t. n and α. In an extended model that endogenizes the quacks' choice of “treatments”, the quacks minimize the force of price competition by offering maximally differentiated treatments. The patients' welfare loss is robust to market interventions, which would crowd out low-quality firms in standard models. Thus, as long as the patients' quality of reasoning is not lifted above the anecdotal level, ordinary competition policies may be ineffective.

Keywords: D49; I10

Journal Article.  12189 words.  Illustrated.

Subjects: Economics of Health ; Market Structure and Pricing

Full text: subscription required

How to subscribe Recommend to my Librarian

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.