Certification intermediaries and the alternative

Abstract

Albano and Lizzeri showed that if quality is endogenous, the existence of a certification intermediary will improve product quality [1]. If quality is exogenous, an intermediary will also improve welfare by not certifying unsafe products; however, it is optimal for a monopolistic intermediary to disclose only minimal information necessary to induce trade [3]. Indeed, many certification schemes today specify only whether a product (website, software) has met a minimal set of requirements. When the criteria are lenient, costs for certification will be indifferent, causing the separating equilibrium to diminish and thus not providing a reliable signal. Edelman showed empirically that TRUSTe-certified websites were more likely to be untrustworthy compared to non-certified websites [2]. © 2010 Springer-Verlag Berlin Heidelberg.