Two-Sided Reputation in Certification Markets

Matthieu Bouvard, Raphaël Levy
2012 Social Science Research Network  
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
more » ... er, competition plays a disciplining role and the region where reputation is bad shrinks. Conversely, this region may expand when sellers hold multiple certifications.
doi:10.2139/ssrn.2178119 fatcat:d62ydsv5nzegpifepnsadljyqa