Billing Abuses by the Experts: A Game-Theoretic Analysis of Legal Services

Abstract

Billing abuses exist when an expert charges the expert hourly rate but offers quality that does not match the charge. This paper provides a game-theoretic analysis so that, when the quality of an expert's services is unobservable to consumers before purchase, hourly rate competition can eliminate the profits necessary to induce the expert to offer the quality services. This paper further demonstrates that the threat of business termination by customers is not sufficiently credible to ensure that the experts will produce high quality services. Given the fact that billing abuses always exist, this paper suggests that auditing by the customers is necessary to reduce the overcharged amount, and customers have to audit a high percentage of the billed amount.