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Raising the Bar: Certification Thresholds and Market Outcomes

Author

Listed:
  • Xiang Hui
  • Maryam Saeedi
  • Giancarlo Spagnolo
  • Steven Tadelis

Abstract

Certification of sellers by trusted third parties helps alleviate information asymmetries in markets, yet little is known about the impact of a certification's threshold on market outcomes. Exploiting a policy change on eBay, we study how a more selective certification threshold affects the distribution of quality and incumbent behavior. We develop a stylized model that shows how changes in selectivity change the distribution of quality and prices in markets. Using rich data from hundreds of online categories on eBay.com, we find support for the model's hypotheses. Our results help inform the design of certification selectivity in electronic and other markets.

Suggested Citation

  • Xiang Hui & Maryam Saeedi & Giancarlo Spagnolo & Steven Tadelis, 2023. "Raising the Bar: Certification Thresholds and Market Outcomes," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 599-626, May.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:2:p:599-626
    DOI: 10.1257/mic.20210179
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    Citations

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    Cited by:

    1. Xiang Hui & Meng Liu & Tat Chan, 2023. "Targeted incentives, broad impacts: Evidence from an E-commerce platform," Quantitative Marketing and Economics (QME), Springer, vol. 21(4), pages 493-517, December.

    More about this item

    JEL classification:

    • 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
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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