Honest Certification and the Threat of Capture

Roland Strausz

Departmental Working Papers

Abstract: This paper studies problems of capture in certification markets. It derives conditions under which reputation enables certifiers to resist capture. Moreover, it identifies a general principle of reputation models that favors concentration. This explains certifiers as efficient market institutions that sell reputation as a service to other firms. The analysis yields the following insights: 1) A demand for external certification exists, despite being costly and susceptibility to capture. 2) Low discount factors require a price of certification that exceeds the static monopoly price. 3) Price competition tends to a monopolization of certification markets. 4) Honest certification exhibits economies of scale and constitutes a natural monopoly.

Keywords: certification; collusion; bribery; reputation; natural monopoly (search for similar items in EconPapers)
JEL-codes: D82 L11 L15 (search for similar items in EconPapers)
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Citations: View citations in EconPapers (30)

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Related works:
Journal Article: Honest certification and the threat of capture (2005)
Working Paper: Honest Certification and the Threat of Capture (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:bef:lsbest:018

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