Two-Sided Reputation in Certification Markets

Résumé

In a market where sellers solicit certification to overcome asymmetric infor-mation, we show that the profit of a monopolistic certifier can be hump-shaped in itsreputation for accuracy: a higher accuracy attracts high-quality sellers but sometimesrepels low-quality sellers. As a consequence, reputational concerns may induce the certi-fier to reduce information quality, thus depressing welfare. The entry of a second certifierimpacts reputational incentives: when sellers only solicit one certifier, competition plays adisciplining role and the region where reputation is bad shrinks. Conversely, this regionmay expand when sellers hold multiple certifications.