Beschreibung:
We analyze the effects of consumer feedback on a credence goods market where consumers sequentially visit a monopolistic expert. Each consumer faces a problem which can be either minor or major. The expert performs a diagnosis that may or may not reveal the severity of the problem and provides a treatment which can solve it or not. After visiting the expert, each consumer reveals the received treatment and its outcome, i.e., whether it fixed her problem. Each consumer observes the feedback history, updates her belief about the informativeness of the expert's diagnosis and decides whether to visit him. We show that consumer feedback can lead to inefficiency. More precisely, when the diagnosis fails, the expert overtreats consumers whereas the probability of a major problem is sufficiently low. This behavior does not arise without consumer feedback