Credence good

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A credence good is a term used in economics for a good whose utility impact is difficult or impossible for the consumer to ascertain, unlike experience goods the utility gain or loss is difficult to measure after consumption as well. The seller of the good knows the utility impact of the good, creating a situation of asymmetric information. Examples of credence goods include;

• Vitamin supplements
• Education
• Car repairs
• Many forms of medical treatment
• Home maintenance services, such as plumbing and electricity.
• Estate agents

In an unregulated market prices of credence goods tend to converge, ie. the same flat rate is charged for high and low value goods. The reason is that suppliers of credence good tend to overcharge for low value goods, since the customers are not aware of the low value, while competitive pressures force down the price of high value goods. Another reason is that customers become aware of the possibility of being overcharged, and compensate by favouring more expensive goods over cheaper ones. For example, a customer may ask for a complete replacement of a broken car part with a new one, irrespective of whether the damage is small or large (which the customer doesn't know). In this case the new part is "proof" that the customer hasn't been overcharged ^[1].

[edit] References

• ↑  The Economist, Sawbones, cowboys and cheats, 2006/04/12

Types of goods public good - private good - common good - common-pool resource - club good - anti-rival goods rivalrous good and non-excludable good complement good vs. substitute good free good vs. scarce good, positional good (non-)durable good - intermediate good (producer good) - final good - consumer good - capital good. inferior good - normal good - ordinary good - Giffen good - luxury good - Veblen good - superior good search good - (post-)experience good - merit good - credence good - demerit good