Credence goods, hidden preferences and altruism

The dissertation explores the effects of asymmetric information in the markets for three goods: credence goods, art objects and gift exchanges. Chapter 1 is concerned with sellers' incentives to cheat and customers' incentives to share information with sellers in credence good markets. Credence goods are products or services whose usefulness or necessity to buyers is known only to sellers. Examples include expert services provided by physicians, lawyers and car mechanics. In the basic model, I first prove that an expert monopolist does not cheat even when cheating is costless, customers cannot search for second opinion, and the expert has no concern for reputation. This suggests that asymmetric information in credence good markets is inadequate for explaining the observations that sellers not only cheat but also cheat selectively. By incorporating other characteristics of real-life expert markets, I discover that selective cheating arises when different customers have different valuations of the credence good, or when the seller's cost of supplying the credence good varies across customers. Finally, I demonstrate that customers may withhold from the expert useful information out of fear of being cheated.; Chapter 2 considers auctions of art objects. There are two types of bidders: dealers who intend to arbitrage in the resale market and private collectors who acquire art works for pleasure. A dealer's strategy for competing against a private collector is different from that against another dealer. I analyze how a dealer competes against a rival who may be another dealer or a collector. I show that for any arbitrarily high likelihood of the rival being another dealer, a dealer bids as if he was competing against a private collector.; Chapter 3 studies gift exchange between altruistic agents who do not have reciprocity or fairness concern. Two altruistic agents present gifts to each other sequentially. If the agents' degrees of altruism are common knowledge, the gift sizes are independent due to random matching. If the second donor's altruism is private information, then, for a wide range of parameter values, the second donor exaggerates her degree of altruism by giving a larger gift. Moreover, reciprocal behavior arises: the second donor's gift amount is positively related to the gift he receives.