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Segmentation and pricing behavior in a market for certification

Hvide, Hans K.
Working paper
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URI
http://hdl.handle.net/11250/164047
Date
2002-11
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  • Discussion papers (FOR) [509]
Abstract
The paper offers a simple theory of pricing behavior in certification markets. The basis for the theory is that certifiers offer differentiated tests; for an object of given quality it may be more difficult to pass the test of certifier i than the test of certifier j. Given the test standards, certifiers compete for customers via their simultaneous pricing decisions. In equilibrium, each certifier attracts a connected segment of the market, and sellers of high quality products pay a higher price for certification than sellers of low quality products. Lemons may be certified in equilibrium, although the responsible certifier could have screened off the lemons by charging a higher price. The theory is applied to the US market for MBA education and finds support.
Publisher
Norwegian School of Economics and Business Administration. Department of Finance and Management Science
Series
Discussion paper
2002:12

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