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Honest certification and the threat of capture

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  • Strausz, Roland

Abstract

This paper derives conditions under which reputation enables certifiers to resist capture. These conditions alone have strong implications for the industrial organization of certification markets: 1) Honest certification requires high prices that may even exceed the static monopoly price. 2) Honest certification exhibits economies of scale and constitutes a natural monopoly. 3) Price competition tends to a monopolization. The results derive from a general principle of reputation models that favors concentration. This principle implies benefits from specialization and explains specialized certifiers as efficient market institutions that sell reputation as a service to other firms.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 23 (2005)
Issue (Month): 1-2 (February)
Pages: 45-62

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Handle: RePEc:eee:indorg:v:23:y:2005:i:1-2:p:45-62

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Web page: http://www.elsevier.com/locate/inca/505551

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