The Hindu Business Line : <I>Tuesday blues</I>

My friend travels to a nearby city for two days every week. After several such trips, he noticed a pattern in his taxi bills. He always ran a larger bill on Tuesdays than on Mondays though he travelled to the same places on both days! A self-styled economist, he reasoned that the difference was due to the effect of credence goods. What are credence goods?

Suppose you visit a doctor with a stomach problem. The doctor also advises you to undergo a surgery for tonsils. What do you do? Chances are, you will go with what the doctor tells you. Why? You decide that the doctor knows better . The doctor's service is an example of credence goods. These are products and services that you buy in good faith because the service provider has more information about your need than you do.

How does this explain my friend's experience with taxis? Though my friend visits the city regularly, he is so engrossed in conference calls on his Blackberry that he does not know the routes to his destination. He is at the mercy of the taxi drivers (read credence goods).

But why the difference in taxi fares on Mondays and Tuesdays? Most executives in the city are usually coping with a hang over on Monday mornings and, therefore, prefer not to drive to work. So, the demand for taxis on Mondays is higher. There is, therefore, no incentive for taxi drivers to take naïve passengers on an unnecessary tour of the city.

On Tuesdays, the executives are sober enough to drive their own cars. And as demand for taxis go down, the incentive for taxi drivers to cheat goes up.

(The author is based in Toronto, Canada)

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