Championing and shaming in a credence good market: Which one to use?

Alexandre Volle () and Patrick Gonzalez ()
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Alexandre Volle: TREE - Transitions Energétiques et Environnementales - UPPA - Université de Pau et des Pays de l'Adour - CNRS - Centre National de la Recherche Scientifique

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Abstract: Abstract We analyze the performance of the championing and shaming inquiries by a Nongovernmental Organization in a signaling game played by a monopoly that sells a credence good to an uninformed consumer. Championing (shaming) means certifying (uncovering) a firm that sells a high (low) quality product. An inquiry alters the whole information structure of the signaling game. It provides redundant hard information in a separating equilibrium but it lowers the set of separating prices. We show that a high‐quality producer and the consumers welcome this inquiry in a pooling equilibrium as it enhances their expected payoffs. They prefer a championing over a shaming inquiry when the likelihood of a high‐quality producer is low. A championing inquiry may lower the consumer's expected payoff if it is run before the monopoly sets its price since the consumer may prefer paying a low pooling price for a credence good rather than a high price for a certified high‐quality good.

Date: 2023-11-17
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Published in Journal of Economics and Management Strategy, 2023, ⟨10.1111/jems.12566⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04370961

DOI: 10.1111/jems.12566

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