Certifier Competition and Audit Grades

Abstract

Third party certification bodies audit companies to determine compliance with standards. We introduce a model of oligopoly competition between certification bodies, showing that a higher degree of certification body competition results in higher grades. We empirically test this hypothesis using panel data from the British Retail Consortium food program, a leading international food safety standard for food manufacturers, and find evidence that a higher degree of competition between certification bodies is associated with higher audit grades. Grades are lower the first time manufacturers certify, suggesting certification may improve food safety practices. Producers with multiple certified sites obtain higher grades.

Keywords: certification, standard, food safety, British Retail Consortium, audit grades

JEL Classification: L66, L15, L13, H89