The market for quacks

Ran Spiegler*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


A group of n "quacks"plays a price-competition game, facing a continuum of "patients"who recover with probability α, whether they acquire a quack's "treatment". If patients chose rationally, the market would be inactive. I assume, however, that patients choose according to a boundedly rational procedure, which reflects "anecdotal"reasoning. This element of bounded rationality has significant implications. The market for quacks is active, and patients suffer a welfare loss which behaves non-monotonically w.r.t. n and α. In an extended model that endogenizes the quacks'choice of "treatments", the quacks minimize the force of price competition by offering maximally differentiated treatments. The patients'welfare loss is robust to market interventions, which would crowd out low-quality firms in standard models. Thus, as long as the patients'quality of reasoning is not lifted above the anecdotal level, ordinary competition policies may be ineffective.

Original languageEnglish
Pages (from-to)1113-1131
Number of pages19
JournalReview of Economic Studies
Issue number4
StatePublished - Oct 2006


Dive into the research topics of 'The market for quacks'. Together they form a unique fingerprint.

Cite this