Honest certification and the threat of capture
AbstractThis 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.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 23 (2005)
Issue (Month): 1-2 (February)
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Web page: http://www.elsevier.com/locate/inca/505551
Other versions of this item:
- Roland Strausz, . "Honest Certification and the Threat of Capture," Papers 018, Departmental Working Papers.
- Strausz, Roland, 2004. "Honest Certification and the Threat of Capture," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 25, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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