Silvia Angerer: The Value of Rating Systems, Reputation and Competition in Healthcare Credence Goods Markets (online)

FBK-IRVAPP is pleased to invite you to the following seminar:

The Value of Rating Systems, Reputation and Competition in Healthcare Credence Goods Markets

With the participation of Silvia Angerer, UMIT Tirol

Language: the seminar is held in English.

Abstract : In this paper, we experimentally investigate the effect of competition, reputation, and feedback on market outcomes in healthcare markets. Healthcare markets are characterized by asymmetric information between physicians and patients. Physicians have an information advantage over patients with respect to the appropriate treatment. They may exploit this advantage by providing either too little (undertreatment), too much (overtreatment), or may simply charge for services not rendered (overcharging). We investigate the effect of competition, direct reputation, and indirect reputation through a feedback mechanism, in form of a five-star rating system. We differentiate between two different market environments: a market where patients draw on personal experience, i.e., a market with direct reputation, and a market that mimics a situation where patients and physicians have no prior experience with one another, i.e., a market without direct reputation. We find that the effectiveness of the feedback mechanism heavily depends on market structures. Allowing patients to rate interactions with physicians in markets without direct reputation results in less physician misbehavior and improved market outcomes. However, in markets where patients are experienced and physicians can build a direct reputation, the implementation of a feedback mechanism does not enhance market outcomes, as these markets already operate at high levels of efficiency. This high level of efficiency is guaranteed by the combination of direct reputation and competition. Taken together, our results suggest that feedback mechanisms are most effective when patients have no experience with physicians but provide no additional benefits if patients have and draw on personal experience.