From High Bar to Uneven Bars: The Impact of Information Granularity in Quality Certification

41 Pages Posted: 19 Jan 2021 Last revised: 7 Jul 2022

See all articles by Xiang Hui

Xiang Hui

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

Zekun Liu

New York University (NYU) - Leonard N. Stern School of Business

Weiqing Zhang

New York University (NYU) - Leonard N. Stern School of Business

Date Written: November 16, 2020

Abstract

Quality certification is ubiquitously used in markets with asymmetric information, but little is known about the impact of the number of certification tiers on market outcomes. Exploiting a field experiment on a large e-commerce marketplace with an existing two-tier certification, we study the impact of introducing a new certification tier that is less history-dependent and less demanding than the existing top tier. Consistent with the theoretical literature on information design, we find that the change in information granularity among the previously non-certified sellers increases demand for high-quality young sellers, incentivizes their quality provision, and increases their chance of eventually obtaining the top-tier certification. Moreover, the three-tier certification structure prompts established sellers with higher effort cost to reduce their effort, opt out of the top tier, and adopt the new tier instead. Lastly, we provide evidence that the net impact of introducing the new certification tier on seller effort depends on how history-dependent the certification requirements are in a market.

Keywords: Quality certification, reputation systems, information granularity, e-commerce

JEL Classification: D47, D82, L86

Suggested Citation

Hui, Xiang and Liu, Zekun and Zhang, Weiqing, From High Bar to Uneven Bars: The Impact of Information Granularity in Quality Certification (November 16, 2020). Available at SSRN: https://ssrn.com/abstract=3731169 or http://dx.doi.org/10.2139/ssrn.3731169

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

Zekun Liu

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Weiqing Zhang

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
376
Abstract Views
1,464
rank
117,067
PlumX Metrics