Intermediaries, Credibility and Incentives to Collude
HEC Paris - Economics & Decision Sciences
Compass Lexecon; Universidad Torcuato Di Tella
November 4, 2010
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.
Number of Pages in PDF File: 44
Keywords: Intermediaries, Collusion and soft information, Credibility and market structure
JEL Classification: C72, L14, M42working papers series
Date posted: September 28, 2005 ; Last revised: March 14, 2013
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