A monopolistic market for certification

Gian Luigi Albano and Alessandro Lizzeri
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Gian Luigi Albano: Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium

No 1997037, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: If buyers do not observe the quality of a product and production of quality is costly, market allocations can be very inefficient. Certification intermediaries are institutions that provide information about quality to buyers. The amount of information in the market determines the incentives that producers have to provide high quality goods. In this paper, we model informa- tion revelation as a strategic variable of intermediaries. The amount of disclosed information is shown to deeply influence both the intermediary’s profits and the distribution of quality produced in equilibrium. We show that a monopoly intermediary will provide noisy signals of quality and that the quality produced in equilibrium is the same as the one that would be chosen by a monopsonistic buyer who optimally designs a mechanism. Efficiency is increased by the intermediary but less quality is produced in equilibrium than under complete information.

Keywords: Information revelation; Disclosure rule; Certification (search for similar items in EconPapers)
JEL-codes: C72 D82 L15 (search for similar items in EconPapers)
Date: 1997-05-01
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1997037

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