The Role of Quality in Service Markets Organized as Multi-Attribute Auctions

80 Pages Posted: 8 Oct 2013

See all articles by Elena Krasnokutskaya

Elena Krasnokutskaya

Johns Hopkins University - Department of Economics

Kyungchul Song

University of British Columbia (UBC) - Department of Economics

Xun Tang

Rice University - Department of Economics

Date Written: June 10, 2013

Abstract

We develop an empirical methodology to study markets for services. These markets are typically organized as multi-attribute auctions in which buyers take into account seller's price as well as various characteristics, including quality. Our identification and estimation strategies exploit observed buyers' and sellers' decisions to recover the distribution of sellers' qualities, the distribution of seller's costs conditional on quality, and the distribution of buyers' tastes. Our empirical results from the on-line market for programming services confirm that quality plays an important role. We use our estimates to study the effect of licensing restrictions and to assess the loss of value from using standard rather than multi-attribute auctions as is common in public procurement.

Keywords: quality, services, licensing, procurement, multi-attribute auctions, identi cation, unobserved heterogeneity, unobserved buyers' tastes, participation in auctions

JEL Classification: C14, C18, D22, D44, D82, L15, L86

Suggested Citation

Krasnokutskaya, Elena and Song, Kyungchul and Tang, Xun, The Role of Quality in Service Markets Organized as Multi-Attribute Auctions (June 10, 2013). PIER Working Paper No. 13-053, Available at SSRN: https://ssrn.com/abstract=2337061 or http://dx.doi.org/10.2139/ssrn.2337061

Elena Krasnokutskaya

Johns Hopkins University - Department of Economics

3400 Charles Street
Baltimore, MD 21218-2685
United States

Kyungchul Song

University of British Columbia (UBC) - Department of Economics

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada

Xun Tang (Contact Author)

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States