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Intermediation Can Replace Certification

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  • Paolo G. Garella
  • Martin Peitz
Abstract
We consider a market in which consumers do not have perfect information about product quality. Producers can perfectly reveal that a good is of high quality through certification, which entails socially wasteful costs. Firms can choose whether to sell through an intermediary or to sell independently (vertical integration). We show that multibrand retailing, which leads to a redistribution of profits but not to social costs, can fully or partially replace certification by signaling product quality. Renting the image of a competing high‐quality brand is shown to be an outcome that can be sustained through intermediation.

Suggested Citation

  • Paolo G. Garella & Martin Peitz, 2000. "Intermediation Can Replace Certification," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 1-24, March.
    • Handle: RePEc:bla:jemstr:v:9:y:2000:i:1:p:1-24
    DOI: 10.1111/j.1430-9134.2000.00001.x
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    Cited by:

    1. Yoichi Nishihara, 2014. "An Anonymous Buyer of Intangible Property," Journal of Industry, Competition and Trade, Springer, vol. 14(4), pages 511-518, December.
    2. Martin Peitz & Paolo G. Garella, 1999. "- Exclusive Dealing Clauses Facilitate Entry," Working Papers. Serie AD 1999-17, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    3. Francesca Barigozzi & Paolo G. Garella & Martin Peitz, 2009. "With a Little Help from My Enemy: Comparative Advertising as a Signal of Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1071-1094, December.
    4. Choi, Jay Pil & Peitz, Martin, 2018. "You are judged by the company you keep: Reputation leverage in vertically related markets," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 351-379.
    5. Paolo G. Garella & Martin Peitz, 2007. "Alliances between Competitors and Consumer Information," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 823-845, June.
    6. Martin Peitz, 2000. "Exclusionary Practices and Entry Under Asymmetric Information," Econometric Society World Congress 2000 Contributed Papers 1197, Econometric Society.
    7. Wolfgang Gick, 2008. "Little Firms and Big Patents: A Model of Small‐Firm Patent Signaling," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(4), pages 913-935, December.

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