For "credence¹（信任，凭证） services" such as auto²-repair, healthcare, and legal services, the benefit to the customers for the service is difficult to assess before and even after the service. A new study in a journal of the Institute for Operations Research and the Management Sciences (INFORMS) finds that in a credence services market, when more service providers care about the customer's well-being³, society as whole may actually be worse off. The study titled, "Signaling through Pricing by Service Providers with Social Preferences," is by Baojun Jiang (Washington University in St. Louis), Jian Ni (Johns Hopkins University) and Kannan Srinivasan (Carnegie Mellon University). This study appears in the Articles in Advance section of Marketing⁴ Science.

 

For example, when an auto mechanic tells a customer to make some repairs, the average customer is unable to discern（识别，领悟） the veracity⁵（诚实，精确性） of the recommendation. The risk of not doing repairs is unknown until a breakdown⁶, if any, occurs. But if repairs are undertaken, their value may never be known.

 

The authors develop an analytical⁷ model to study such a credence service market with two types of service providers. One type is purely⁸ self-interested and focuses on maximizing its own profit. In contrast, the other type, the ethical⁹ provider, has social preferences and cares about the customer's well-being in addition to its own profit.

 

The prior common belief was that society as a whole would always be better off when service providers are ethical and have social preferences. The authors of the article show just the opposite.

 

Professor Jiang explains, "For a provider with social preferences, the optimal¹⁰ strategy that maximizes the combination of its profits and social satisfaction is to charge a uniform price and provide services to all consumers."

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