Championing and Shaming in a Credence Good Market: Which One to Use?

Alexandre Volle () and Patrick González
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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: We analyze the performance of the championing and shaming inquiries by an NGO in a signalling 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 signalling 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.

Keywords: Asymmetric Information; Signalling; Credence Goods; Good News; Bad News; NGO; Choice of Experiment; D8; L15; L31 (search for similar items in EconPapers)
Date: 2023-11-17
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