SEC classification of goods and services

A search good is a product or service with features and characteristics easily evaluated before purchase. In a distinction originally due to Philip Nelson, a search good is contrasted with an experience good. Search goods are more subject to substitution and price competition, as consumers can easily verify the price of the product and alternatives at other outlets and make sure that the products are comparable. Branding and detailed product specifications act to transform a product from an experience good into a search good. ==Experience good==

An experience good is a product or service where product characteristics, such as quality or price, are difficult to observe in advance, but these characteristics can be ascertained upon consumption. The concept is originally due to Philip Nelson, who contrasted an experience good with a search good. Experience goods pose difficulties for consumers in accurately making consumption choices. In service areas, such as healthcare, they reward reputation and create inertia. Experience goods typically have lower price elasticity than search goods, as consumers fear that lower prices may be due to unobservable problems or quality issues. ==Credence good==

. A credence good (or post-experience good) is a good whose utility impact is difficult or impossible for the consumer to ascertain. In contrast to experience goods, the utility gain or loss of credence goods is difficult to measure after consumption as well. The seller of the good knows the utility impact of the good, creating a situation of asymmetric information. For example, a used car dealer who purchased a vehicle knows a great deal more about how the car was used (e.g., as a taxi) and what happened to it (e.g., collisions or water immersion) than a purchaser who walks onto the lot. Examples of credence goods include; • Vitamin supplements • Education • Car repairs and used car sales • Many forms of medical treatment • Home maintenance services, such as plumbing and electricity • Transactional legal services Psychology Credence goods may display a direct (rather than inverse) relationship between price and demand—similar to Veblen goods, when price is the only possible indicator of quality. A consumer might avoid the least expensive products to avoid suspected fraud and poor quality. So a restaurant customer may avoid the cheapest wine on the menu, but instead purchase something slightly more expensive. However, even after drinking it the buyer is unable to evaluate its relative value compared to all the wines they have not tried (unless they are a wine expert). This course of action—buying the second cheapest option—is observable by the restaurateur, who can manipulate the pricing on the menu to maximize their margin, i.e. ensuring that the second cheapest wine is actually the least costly (and most profitable) to the restaurant. Another practical application of this principle would be for competing job applicants not to propose too low a wage when asked, lest the employer think that the employee has something to hide or does not have the necessary qualification for the job. In an unregulated market, prices of credence goods tend to converge, i.e. the same flat rate is charged for high and low value goods. The reason is that suppliers of credence goods tend to overcharge for low value goods, since the customers are not aware of the low value, while competitive pressures force down the price of high value goods. Another reason for price convergence is that customers become aware of the possibility of being overcharged, and compensate by favoring more expensive goods over cheaper ones. For example, a customer may ask for a complete replacement of a broken car part with a new one, irrespective of whether the damage is small or large (which the customer doesn't know). In this case the new part is "proof" that the customer hasn't been overcharged. Studies from 2015 show that consumer decision making varies in the context of search, experience and credence services. Consumers spend more time searching for information about credence services and least time when buying search services. ==References ==