Informative Certification: Screening vs. Acquisition

Gorkem Celik and Roland Strausz

No 525, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We study monopolistic certification in a buyer-seller relationship, explicitly distinguishing between its role as a device for screening versus acquisition. As a screening device, certification discloses soft information about a seller's private information. As an acquistion device, certification discloses hard information about the good's quality. Despite being costless, we show that, optimally, a monopolistic certifier provides non-maximal information-acquisition, while offering maximal screening. Thus, monopolistic certification exhibits no economic distortions as a screening device, resolving all private information, but provides too little hard information as an acquisition device. While feasible and costless, full information acquisition is suboptimal as it requires excessive information rents. Consequently, market inefficiencies remain due to market uncertainty but not due to private information.

Keywords: certification; disclosure; screening; information acquisition; monopolistic distortions (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2025-01-29
New Economics Papers: this item is included in nep-com, nep-cta, nep-des and nep-mic
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