Two-Sided Reputation in Certification Markets

Abstract

We consider a market where privately informed sellers resort to certification to overcome adverse selection. There is uncertainty about the certifier's ability to generate accurate information. The profit of a monopolistic certifier is an inverted U-shaped function of his reputation for accuracy: being perceived as more precise allows to attract more good sellers but a high expected precision also deters bad sellers. Since the certifier tries to reach a balanced reputation to attract both types, reputation has a disciplining effect when the certifier is perceived as insufficiently accurate, but gives incentives to decrease precision when he is perceived as "too" accurate. The impact of competition depends on whether sellers "multihome" or "singlehome". Under singlehoming, certifiers compete to attract good sellers, which makes higher reputation more valuable. Multihoming makes higher reputations less desirable because the competitor exerts a negative externality by providing extra information. Therefore, singlehoming attenuates bad reputation effects, while multihoming exacerbates inefficiencies.

The Economics of Crowdfunding Platforms

“…14 A particular example of the rewards on Butinizz, yet another reward-based French CFP, is provided in the Appendix. 15…”

Information Gatekeeping and Media Bias

“…Prat (2016) argues that media capture and media power are two stylized extremes to study when news manipulation is more likely to succeed, point-ing out that "[o]ften the interaction between government and news takes the form of a complex, mutually beneficial agreement between politicians and the media." 10 Our main contribution is to formalize the emergence of this mutually beneficial relationship when information gatekeeping by incumbents affects the media's reporting incentives through reputational concerns.…”

“…Unlike our model, their model's government cannot control a media outlet's ability to obtain information. Third, as discussed earlier, 10 Prat (2017) defines the power of a media organization as the ability to induce voters to make electoral decisions they would not make if reporting were unbiased and develops a new measure of media power based on media consumption patterns and media ownership structure. 11 In other related work, Petrova (2008) investigates the link between economic inequality and media capture.…”

“…Step 4: Finally, consider (23). Given (A29) and the definition of y(p h , µ) in (10), this condition can be rewritten as…”

Certifier Competition and Product Quality

“…Finally, the issuer can decide whether to publish the rating or conceal it. 8 The potential buyers only observe the rating, or the lack thereof, and the rating fee. They simultaneously bid for the security.…”