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- Intermediation Can Replace Certification

  • Martin Peitz

    (Universidad de Alicante)

  • Paolo G. Garella

    (University of Bologna)

We consider a market in which producers and an intermediary have perfect information about the qualities of the goods. Consumers do not observe the qualities. Producers can perfectly reveal that a good is of high quality through certification. This entails socially wasteful costs. Firms can choose whether to sell throufh an intermediary jointly or exclusively or to sell independently (vertical integration). We show that multi-brand retailing, which leads to a redistribution of profits but not to social costs, can fully or partially replace certification by signaling product quality.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1999-04.pdf
File Function: Fisrt version / Primera version, 1999
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 1999-04.

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Length: 44 pages
Date of creation: Apr 1999
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:1999-04
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  1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
  2. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  3. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-50, June.
  4. Howard P. Marvel & Stephen McCafferty, 1984. "Resale Price Maintenance and Quality Certification," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 346-359, Autumn.
  5. Lin, Y Joseph, 1990. "The Dampening-of-Competition Effect of Exclusive Dealing," Journal of Industrial Economics, Wiley Blackwell, vol. 39(2), pages 209-23, December.
  6. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
  7. Schwartz, Marius, 1987. "The Competitive Effects of Vertical Agreements: Comment," American Economic Review, American Economic Association, vol. 77(5), pages 1063-68, December.
  8. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
  9. Marvel, Howard P, 1982. "Exclusive Dealing," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 1-25, April.
  10. Birger Wernerfelt, 1988. "Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 458-466, Autumn.
  11. Daniel F. Spulber, 1996. "Market Microstructure and Intermediation," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 135-152, Summer.
  12. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  13. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  14. Biglaiser, Gary & Friedman, James W., 1994. "Middlemen as guarantors of quality," International Journal of Industrial Organization, Elsevier, vol. 12(4), pages 509-531, December.
  15. Wujin Chu & Woosik Chu, 1994. "Signaling Quality by Selling Through a Reputable Retailer: An Example of Renting the Reputation of Another Agent," Marketing Science, INFORMS, vol. 13(2), pages 177-189.
  16. Mathewson, G Frank & Winter, Ralph A, 1987. "The Competitive Effects of Vertical Agreements: Comment," American Economic Review, American Economic Association, vol. 77(5), pages 1057-62, December.
  17. Economides, Nicholas, 1989. "Quality variations and maximal variety differentiation," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 21-29, February.
  18. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
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