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Oligopolistic Certification

Author

Listed:
  • Hvide Hans K.

    (University of Aberdeen, hans.hvide@abdn.ac.uk)

Abstract

The paper develops a simple theory of segmentation and fee-setting in certification markets. The basis for the theory is that certifiers offer differentiated tests; for a given object it is more difficult to pass the test of certifier i than the test of certifier j. Given the test standards, certifiers compete for customers via their fee-setting. Segmentation occurs in equilibrium: sellers with low unobservable quality self-select to an easy test and sellers with high unobservable quality self-select to a hard test. Moreover, sellers choosing an easy test pay a lower (endogenous) certification fee than sellers choosing a hard test. These results are consistent with evidence from the market for auditors and other markets, not readily explained by existing theories.

Suggested Citation

  • Hvide Hans K., 2009. "Oligopolistic Certification," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-21, March.
    • Handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:5
    DOI: 10.2202/1935-1704.1230
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    Cited by:

    1. Gill, David & Sgroi, Daniel, 2012. "The optimal choice of pre-launch reviewer," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1247-1260.
    2. Creane, Anthony & Jeitschko, Thomas D. & Sim, Kyoungbo, 2022. "Welfare effects of product certification under latent adverse selection," International Journal of Industrial Organization, Elsevier, vol. 81(C).
    3. Etilé, Fabrice & Teyssier, Sabrina, 2013. "Corporate social responsibility and the economics of consumer social responsibility," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 94(02), pages 221-259, June.

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