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A monopolistic market for certification

Author

Listed:
  • ALBANO, Gian Luigi

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • LIZZERI, Alessandro

    (Princeton University)

Abstract

If buyers do not observe the quality of a product and production of quality is costly, market allocations can be very inefficient. Certification intermediaries are institutions that provide information about quality to buyers. The amount of information in the market determines the incentives that producers have to provide high quality goods. In this paper, we model informa- tion revelation as a strategic variable of intermediaries. The amount of disclosed information is shown to deeply influence both the intermediary’s profits and the distribution of quality produced in equilibrium. We show that a monopoly intermediary will provide noisy signals of quality and that the quality produced in equilibrium is the same as the one that would be chosen by a monopsonistic buyer who optimally designs a mechanism. Efficiency is increased by the intermediary but less quality is produced in equilibrium than under complete information.

Suggested Citation

  • ALBANO, Gian Luigi & LIZZERI, Alessandro, 1997. "A monopolistic market for certification," CORE Discussion Papers 1997037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1997037
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    File URL: https://uclouvain.be/en/research-institutes/immaq/core/dp-1997.html
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    Cited by:

    1. L. A. Franzoni, 1998. "Imperfect competition in certification markets," Working Papers 338, Dipartimento Scienze Economiche, Universita' di Bologna.

    More about this item

    Keywords

    Information revelation; Disclosure rule; Certification;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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