Competition and Endogenous Impatience in Credence-Good Markets

In markets for credence goods, such as doctor visits, customers sample a firm for a few periods, before deciding whether to retain or fire that firm. In our model, customers have endogenously determined patience in tolerating bad outcomes from credence-good providers. The more competitive the market, the more options customers have away from a firm, and so the less tolerant of bad outcomes she will be. Competition thus increases equilibrium firm effort, as providers work harder to impress impatient customers. Higher effort raises customer surplus and helps balance the informational advantages providers enjoy in credence-good markets.