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Seller - paid Ratings

Sergey Kovbasyuk

No 1330, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: We study the interaction between the seller of a product, the buyers who are uncertain about the product quality and a rating agency who observes the quality and send signals about it. Assuming the seller-pays model of rating agency, we analyze the cases in which payment to the rater is publicly disclosed and fixed, publicly disclosed and rating-contingent, private and rating-contingent. First, we characterize all possible equilibrium partitions of the underlying quality range into ratings in these three cases. We then characterize the seller's optimal ratings in the three cases. Finally, we perform welfare analysis and discuss regulation.

Pages: 52 pages
Date: 2013, Revised 2013-11
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
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Citations: View citations in EconPapers (4)

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