Oligopolistic Certification

Hans Hvide

The B.E. Journal of Theoretical Economics, 2009, vol. 9, issue 1, 21

Abstract: The paper develops a simple theory of segmentation and fee-setting in certification markets. The basis for the theory is that certifiers offer differentiated tests; for a given object it is more difficult to pass the test of certifier i than the test of certifier j. Given the test standards, certifiers compete for customers via their fee-setting. Segmentation occurs in equilibrium: sellers with low unobservable quality self-select to an easy test and sellers with high unobservable quality self-select to a hard test. Moreover, sellers choosing an easy test pay a lower (endogenous) certification fee than sellers choosing a hard test. These results are consistent with evidence from the market for auditors and other markets, not readily explained by existing theories.

Keywords: adverse selection; auditing; certification (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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DOI: 10.2202/1935-1704.1230

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