Honest Certification and the Threat of Capture

Roland Strausz ()

No 25, Discussion Papers from SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: This paper derives conditions under which reputation enables certifiers to resist capture. These conditions alone have strong implications for the industrial organization of certification markets: 1) Honest certification requires high prices that may even exceed the static monopoly price. 2) Honest certification exhibits economies of scale and constitutes a natural monopoly. 3) Price competition tends to a monopolization. The results derive from a general principle of reputation models that favors concentration. This principle implies benefits from specialization and explains specialized certifiers as efficient market institutions that sell reputation as a service to other firms.

Keywords: certification; collusion; bribery; reputation; natural monopoly (search for similar items in EconPapers)
JEL-codes: L15 D82 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mic
Date: 2004-08
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Related works:
Working Paper: Honest Certification and the Threat of Capture
Journal Article: Honest certification and the threat of capture (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:trf:wpaper:25

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