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...

We study a model of competitive foremarkets and partly monopolized aftermarkets. We show that high aftermarket power prompts firms to engage in inefficiently aggressive below-cost pricing in the foremarket. This inefficiency is driven by the presence of consumers with valuations below marginal...