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Raising the Bar: Certification Thresholds and Market Outcomes

  • Xiang Hui
  • Maryam Saeedi
  • Giancarlo Spagnolo
  • Steven Tadelis
American Economic Journal: Microeconomics
vol. 15, no. 2, May 2023
(pp. 599-626)
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Abstract

Certification of sellers by trusted third parties helps alleviate information asymmetries in markets, yet little is known about the impact of a certification's threshold on market outcomes. Exploiting a policy change on eBay, we study how a more selective certification threshold affects the distribution of quality and incumbent behavior. We develop a stylized model that shows how changes in selectivity change the distribution of quality and prices in markets. Using rich data from hundreds of online categories on eBay.com, we find support for the model's hypotheses. Our results help inform the design of certification selectivity in electronic and other markets.

Citation

Hui, Xiang, Maryam Saeedi, Giancarlo Spagnolo, and Steven Tadelis. 2023. "Raising the Bar: Certification Thresholds and Market Outcomes." American Economic Journal: Microeconomics, 15 (2): 599-626. DOI: 10.1257/mic.20210179

Additional Materials

JEL Classification

  • D82 Asymmetric and Private Information; Mechanism Design
  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • L15 Information and Product Quality; Standardization and Compatibility
  • L86 Information and Internet Services; Computer Software
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