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Certification Under Oligopolistic Competition

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  • Sabyasachi Das

    (University of Vienna)

Abstract

In a symmetric duopolistic market where each firm’s choice regarding certain quality attributes such as the environmental friendliness of its product is its own private information, the extent of horizontal differentiation between firms plays a crucial role in a certifier’s optimal certification policy. Under a non-profit certifier it is always the case that both firms produce the highest quality and opt for certification. This is also the case under a for-profit certifier, but only when the degree of horizontal differentiation is sufficiently high. When horizontal differentiation is low, the for-profit certifier, by charging a very high certification fee, creates maximum vertical differentiation between firms. As a result, only one firm produces the highest quality and opts for certification whereas the other firm produces the lowest quality and does not opt for certification. This asymmetry under a for-profit certifier makes the market inefficient, which provides one possible explanation for the existence of mostly non-profit certifiers in such markets.

Suggested Citation

  • Sabyasachi Das, 2016. "Certification Under Oligopolistic Competition," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 251-271, September.
    • Handle: RePEc:kap:enreec:v:65:y:2016:i:1:d:10.1007_s10640-015-9903-3
    DOI: 10.1007/s10640-015-9903-3
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    Cited by:

    1. Ibrahima Barry & Olivier Bonroy & Paolo G. Garella, 2017. "Eco‐labelling by a for‐profit certifier: Countervailing power and its consequences," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(4), pages 1037-1062, November.
    2. Michael Finus & Bianca Rundshagen, 2016. "Game Theory and Environmental and Resource Economics—In Honour of Alfred Endres, Part Two," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 1-4, September.

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    More about this item

    Keywords

    Asymmetric information; Certification; Eco-labeling; Horizontal differentiation; Oligopolistic competition;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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