What drives fraud in a credence goods market? Evidence from a field study

This paper investigates the impact of four key economic variables on an expert firm's incentive to defraud its customers in a credence goods market: the level of competition, the expert firm's financial situation, its competence, and its reputational concerns. We use and complement the dataset of 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 and high competence lower a firm's incentive to overcharge. A low concern for reputation and a critical financial situation increase the incentive to overcharge.