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Intermediaries, Credibility and Incentives to Collude

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  • Eloïc Peyrache
  • Lucía Quesada

Abstract

A seller contracts and potentially colludes with a certification intermediary. We investigate the intermediary’s incentives to collude, her pricing strategy, and the extent to which buyers rely on the intermediary’s announcements. The probability of collusion is an endogenous variable, determined by the intermediary’s pricing strategy. The extent to which the market relies on the intermediary’s reports, the certification price and the intermediary’s profit decrease as the intermediary becomes less patient. By making certification mandatory, the intermediary loses her ability to screen out low‐quality sellers, which increases the probability of collusion.

Suggested Citation

  • Eloïc Peyrache & Lucía Quesada, 2011. "Intermediaries, Credibility and Incentives to Collude," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 1099-1133, December.
  • Handle: RePEc:bla:jemstr:v:20:y:2011:i:4:p:1099-1133
    DOI: j.1530-9134.2011.00317.x
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    File URL: https://doi.org/10.1111/j.1530-9134.2011.00317.x
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    Cited by:

    1. Alexandre de Cornière & Greg Taylor, 2019. "A model of biased intermediation," RAND Journal of Economics, RAND Corporation, vol. 50(4), pages 854-882, December.
    2. Doherty, Neil A. & Kartasheva, Anastasia V. & Phillips, Richard D., 2012. "Information effect of entry into credit ratings market: The case of insurers' ratings," Journal of Financial Economics, Elsevier, vol. 106(2), pages 308-330.
    3. Prüfer, Jens, 2018. "Trusting privacy in the cloud," Information Economics and Policy, Elsevier, vol. 45(C), pages 52-67.
    4. Sabyasachi Das, 2016. "Certification Under Oligopolistic Competition," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 251-271, September.
    5. Saak, Alexander E., 2016. "Delegation of quality control in value chains:," IFPRI discussion papers 1526, International Food Policy Research Institute (IFPRI).
    6. Marcus Miller & Olli Castrén & Lei Zhang, 2007. "'Irrational exuberance' and capital flows for the US New Economy: a simple global model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(1), pages 89-105.
    7. Suvorov Anton & Tsybuleva Natalia, 2010. "Advice by an Informed Intermediary: Can You Trust Your Broker?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-35, November.
    8. Alexandre de Cornière & Greg Taylor, 2014. "Quality Provision in the Presence of a Biased Intermediary," Working Papers 14-06, NET Institute.
    9. Saak, Alexander E., 2016. "The Value of Delegated Quality Control and Market Size with an Application to Kyrgyzstan Dairy," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235707, Agricultural and Applied Economics Association.
    10. Francesco Giuli & Marco Manzo, 2009. "Enhancing Bank Transparency: What Role for the Supervision Authority?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(4), pages 1-58, December.
    11. Alexander E. Saak, 2017. "The Value of Delegated Quality Control," Journal of Industrial Economics, Wiley Blackwell, vol. 65(2), pages 309-335, June.
    12. Anton Suvorov & Natalia Tsybuleva, 2008. "Advice by an Informed Intermediary: Can You Trust Your Broker?," Working Papers w0121, New Economic School (NES).
    13. Stolper, Anno, 2009. "Regulation of credit rating agencies," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1266-1273, July.
    14. Wolitzky Alexander, 2012. "Career Concerns and Performance Reporting in Optimal Incentive Contracts," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-32, February.

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