Certification and Market Transparency

Roland Strausz

No 3, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: In markets with quality unobservable to buyers, third-party certification is often the only instrument to increase transparency. While both sellers and buyers have a demand for certification, its role differs fundamentally: sellers use it for signaling, buyers use it for inspection. Seller induced certification leads to more transparency, because it is informative - even if unused. By contrast, buyer induced certification incentivizes certifiers to limit transparency, as this raises demand for inspection. Whenever transparency is socially beneficial, seller certification is preferable. It also yields certifiers larger profits, so that regulating the mode of certification is redundant.

Keywords: Market transparency; certification; information and product quality; asymmetric information (search for similar items in EconPapers)
JEL-codes: D82 G24 L15 (search for similar items in EconPapers)
Date: 2017-03-25
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (28)

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Related works:
Journal Article: Certification and Market Transparency (2017)
Working Paper: Certification and Market Transparency (2014)
Working Paper: Certification and market transparency (2014)
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