Certification, Reputation and Entry: An Empirical Analysis

60 Pages Posted: 22 Aug 2018

See all articles by Xiang Hui

Xiang Hui

Washington University in St. Louis - John M. Olin Business School

Maryam Saeedi

Carnegie Mellon University - David A. Tepper School of Business

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Steven Tadelis

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: August 2018

Abstract

Markets with asymmetric information will often employ third-party certification labels to distinguish between higher and lower quality transactions, yet little is known about the effects of certification policies on the evolution of markets. How does the stringency in quality certification affect the intensity and composition of entry, incumbents' reactions, and market outcomes? We use detailed administrative data and exploit a policy change on eBay to explore how a more selective certification policy affects entry and behavior across a rich set of online market segments. We find that after the policy change, entry increases and does so more intensely in markets where it is harder to become certified. The average quality of entrants also increases more in the more affected markets, while the quality distribution of entrants exhibits fatter tails ex post. Finally, some incumbents increase the quality of their service to maintain certification and deliver higher quality after the policy change. The results help inform the design of certification policies in electronic and other markets with asymmetric information.

Suggested Citation

Hui, Xiang and Saeedi, Maryam and Spagnolo, Giancarlo and Tadelis, Steven, Certification, Reputation and Entry: An Empirical Analysis (August 2018). NBER Working Paper No. w24916, Available at SSRN: https://ssrn.com/abstract=3236721

Xiang Hui (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Maryam Saeedi

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

Steven Tadelis

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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