Universityof Sydney

Consumers and Experts: An Econometric Analysis of the Demand for Water Heaters

Email address: R.Bartels@econ.usyd.edu.au

Abstract:
Consumers can accumulate product information on the basis of a combination of searching, product advertising and expert advice. Examples of experts who provide product information include doctors advising patients on treatments, motor mechanics diagnosing car problems and recommending repairs, accountants recommending investment strategies, and plumbers making recommendations on alternative water heaters. In each of these examples, the transactions involve the sale of goods and services where the seller is at the same time an expert providing advice on the amount and type of product or service to be purchased. In the case of water heaters, the plumber advising a consumer on their choice of water heater, will most likely also install the appliance. Hence there is a strategic interaction between the plumber and the consumer because of asymmetric information and potential differences in preferences. This paper reports on an econometric investigation of the extent to which plumbers act in the best interests of their customers. The empirical work is made possible by the availability of stated preference data generated by designed experiments involving separate samples of Australian consumers and plumbers, and the model used is the mixed logit model. We find that, for some product attributes, plumbers make the same trade-offs as consumers; but for other attributes the plumbers' preferences are different to those of consumers.

PDF file of paper: bartels.pdf

Session: Consumer Demand Behavior

Time: Sunday, 8 July, 2:15pm - 3:45pm

Room: D