Free-Entry Equilibrium in a Market for Certifiers
31 Pages Posted: 1 Jun 2001
Date Written: May 18, 2001
Abstract
The role of certifiers is to test products for quality, and to communicate the test results to the market. We construct a free-entry model of certification, where each certifier chooses a test standard and a price for certification. In equilibrium, certifiers differentiate their test standards, products of different quality are certified by different certifiers, the price for certifying a high-quality product is higher than the price for certifying a low-quality product, and the net gain from certification is increasing in the (non-observable) product quality. We test and find support for these predictions in the market for MBA education, and also discuss how to apply the model to questions of regulation and minimum quality standards.
Keywords: Certification; Free-entry; MBA; Product differentiation; Schooling; Signaling
JEL Classification: C72, D43, D82, G24, G38, I20, J4, M49
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Certification Disclosure and Informational Efficiency: A Case for Ordered Ranking of Levels
-
That's News to Me! Information Revelation in Professional Certification Markets
By John A. List, Andrew Kato, ...
-
That's News to Me! Information Revelation in Professional Certification Markets
By Ginger Zhe Jin, Andrew Kato, ...
-
Who Should Pay for Certification?
By Konrad O. Stahl and Roland Strausz
-
Who Should Pay for Certification?
By Konrad O. Stahl and Roland Strausz
-
Modelling Transactions with Ultimatum Games: An Experiment on Certification
-
The Impact of Online Information on the Value of Quality Signals in Traditional Markets
By Vandana Ramachandran, Siva Viswanathan, ...