Using clients’rejection to build trust

This paper studies the impact of an expert’s concern for future business on his conduct and market effi ciency. In markets for professional services including health care, legal services, consulting and car mechanic services, clients often lack the expertise to assess the value of services provided by an expert both before and after consumption. Clients’ ignorance exposes them to the risk of being exploited by the expert. When the expert has no concern for future business, market collapses and clients’ problems are never fixed. We characterize the most profitable equilibrium in a repeated game. When the expert suffi ciently cares about future business, trade will happen but full effi ciency is never achieved. We find that either undertreatment for the serious problem or overtreatment for the minor problem can happen in the most profitable equilibrium. We characterize the conditions under which undertreatment or overtreatment arises.