Two-Sided Reputation in Certification Markets

46 Pages Posted: 20 Nov 2012 Last revised: 19 Dec 2016

See all articles by Matthieu Bouvard

Matthieu Bouvard

McGill University - Desautels Faculty of Management

Raphaël Levy

University of Mannheim - Department of Economics

Date Written: December 15, 2016

Abstract

In a market where sellers solicit certification to overcome asymmetric information, we show that the profit of a monopolistic certifier can be hump-shaped in its reputation for accuracy: a higher accuracy attracts high-quality sellers but sometimes repels low-quality sellers. As a consequence, reputational concerns may induce the certifier to reduce information quality, thus depressing welfare. The entry of a second certifier impacts reputational incentives: when sellers only solicit one certifier, competition plays a disciplining role and the region where reputation is bad shrinks. Conversely, this region may expand when sellers hold multiple certifications.

Keywords: Certification, Reputation, Multihoming

JEL Classification: D82, D83

Suggested Citation

Bouvard, Matthieu and Levy, Raphaël, Two-Sided Reputation in Certification Markets (December 15, 2016). Available at SSRN: https://ssrn.com/abstract=2178119 or http://dx.doi.org/10.2139/ssrn.2178119

Matthieu Bouvard (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Raphaël Levy

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

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