Fear of rejection? Tiered certification and transparency

TitleFear of rejection? Tiered certification and transparency
Publication TypeJournal Article
Year of Publication2013
AuthorsFarhi E., Lerner J., Tirole J.
JournalRand Journal of Economics
Volume44
Issue4
Pagination610-631
Date PublishedWin
Type of ArticleArticle
ISBN Number0741-6261
Accession NumberWOS:000331602400002
Abstract

Product quality certifiers may not reveal the identity of unsuccessful applicants/sellers for three reasons. First, they respond to the desire of individual sellers to avoid the stigma from rejection. Second, nontransparency helps a certifier to increase his market power by raising the stigma from lower-tier certification. Third, transparency does not help screen among heterogeneous sellers. Strategic complementarities arise as sellers move down the certification pecking order and lead to the stigmatization of the lower tiers. Mandating transparency benefits the sellers but has an ambiguous impact on buyers, who actually become less informed about product quality.

DOI10.1111/1756-2171.12033