Saints and Markets: Activists and the Supply of Credence Goods

Abstract

This paper contains a theoretical exploration of the potential effects of an information‐supplying activist on a market for credence goods. Using a non‐cooperative game‐theoretic model with incomplete information, we find that such an activist can alter the decisions of firms and consumers and enhance the social welfare of market exchange. We also find that an activist can support equilibria in which firms differentiate their products on some credence characteristic even though this characteristic remains unknown to the consumer both prior and subsequent to consumption. In general, our analysis has several implications for the study of private collective action in markets.