Alexander Rasch

What Drives Fraud in a Credence Goods Market? Evidence from a Field Study

This paper investigates the impact of competition on an expert firms incentive to defraud its customers in a credence goods market. Controlling for the competence of car repair shops, their financial situation, and reputational concerns, we use and complement the data set from a nationwide field study conducted by the German Automobile Association that regularly checks the reliability of garages in Germany. We find that more intense competition lowers a firms incentive to defraud its customers.

Second Opinions in Markets for Expert Services: Experimental Evidence

We experimentally investigate the role of second opinions in markets where experts such as physicians both diagnose and provide the services. Physicians may exploit their informational advantage and overtreat their patients by providing a more costly and expensive treatment than necessary. We show that introducing costly second opinions significantly reduces the level of overtreatment. Lowering search costs leads to significantly more second opinions, but the overtreatment level does not decrease. Under low but not under high search costs, market efficiency rises with the introduction of second opinions, as the reduction in treatment costs due to less overtreatment exceeds the increase in incurred search costs.

Excluding Ringleaders from Leniency Programs

We analyze the impact of ringleader discrimination in leniency programs on the sustainability of collusion. An important role of leniency is to elicit cartel members’ evidence about collusive activity in order to increase the probability of convicting the cartel. We find that ringleader discrimination does not play a role when the ringleader’s relative amount of evidence is high as the collusive agreement will specify and compensate the ringleader to never blow the whistle in any case whereas ringleader discrimination has a pro-collusive (deterring) effect when the ringleader’s relative evidence is moderate (low). Furthermore, ringleader discrimination may deter collusion if the investigation probability of the antitrust authority is sufficiently high but not too high. In this case, the effect of asymmetry from exclusion — even if profits are redistributed — is stronger than the loss of ringleader evidence for conviction.

Customer-side transparency, elastic demand, and tacit collusion under differentiation

Customer-side price transparency affects sustainability of collusion in a duopoly model of spatial product differentiation with elastic demand. When product differentiation is significant, more transparency facilitates collusion as measured by the critical discount factor. For the case where products are relatively homogeneous, the relationship is U-shaped. The level of transparency that optimally deters collusion is thus zero for intermediate to large degrees of product differentiation. Only when products are very moderately differentiated will full transparency be beneficial.

Preferences and Decision Support in Competitive Bidding

We examine bidding behavior in first-price sealed-bid and Dutch auctions, which are strategically equivalent under standard preferences. We investigate whether the empirical breakdown of this equivalence is due to (non-standard) preferences or due to the different complexity of the two formats (i.e., a different level of mathematical/individual sophistication needed to derive the optimal bidding strategy). We first elicit measures of individual preferences and then manipulate the degree of complexity by offering various levels of decision support. Our results show that the equivalence of the two auction formats only breaks down in the absence of decision support. This indicates that the empirical breakdown is caused by differing complexity between the two formats rather than non-standard preferences.

Auctions and competition policy

The book aims to further our understanding of how economic reasoning and legal expertise complement each other in defining the fundamental issues and principles in competition policy. In specially commissioned chapters the book provides a scholarly review of economic theory, empirical evidence and standards of legal evaluation with respect to monopolization of markets, exploitation of market power and mergers, among other issues.