Free-Entry Equilibrium in a Market for Certifiers

31 Pages Posted: 1 Jun 2001

See all articles by Hans K. Hvide

Hans K. Hvide

University of Bergen - Department of Economics; University of Aberdeen - Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Aviad Heifetz

Open University of Israel - Department of Economics and Management

Date Written: May 18, 2001

Abstract

The role of certifiers is to test products for quality, and to communicate the test results to the market. We construct a free-entry model of certification, where each certifier chooses a test standard and a price for certification. In equilibrium, certifiers differentiate their test standards, products of different quality are certified by different certifiers, the price for certifying a high-quality product is higher than the price for certifying a low-quality product, and the net gain from certification is increasing in the (non-observable) product quality. We test and find support for these predictions in the market for MBA education, and also discuss how to apply the model to questions of regulation and minimum quality standards.

Keywords: Certification; Free-entry; MBA; Product differentiation; Schooling; Signaling

JEL Classification: C72, D43, D82, G24, G38, I20, J4, M49

Suggested Citation

Hvide, Hans and Heifetz, Aviad, Free-Entry Equilibrium in a Market for Certifiers (May 18, 2001). Available at SSRN: https://ssrn.com/abstract=270418 or http://dx.doi.org/10.2139/ssrn.270418

Hans Hvide (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

HOME PAGE: http://hans.hvide.googlepages.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Aviad Heifetz

Open University of Israel - Department of Economics and Management ( email )

108 Ravutski st.
P.O. B. 808
Raanana, 43107
Israel
+972 9 778 1878 (Phone)
+972 9 778 0668 (Fax)

HOME PAGE: http://www.openu.ac.il/Personal_sites/Aviad-Heifetz.html

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