Raising the Bar: Certification Thresholds and Market Outcomes

Xiang Hui, Maryam Saeedi, Giancarlo Spagnolo and Steven Tadelis

American Economic Journal: Microeconomics, 2023, vol. 15, issue 2, 599-626

Abstract: Certification of sellers by trusted third parties helps alleviate information asymmetries in markets, yet little is known about the impact of a certification's threshold on market outcomes. Exploiting a policy change on eBay, we study how a more selective certification threshold affects the distribution of quality and incumbent behavior. We develop a stylized model that shows how changes in selectivity change the distribution of quality and prices in markets. Using rich data from hundreds of online categories on eBay.com, we find support for the model's hypotheses. Our results help inform the design of certification selectivity in electronic and other markets.

JEL-codes: D82 L11 L15 L86 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1257/mic.20210179

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