Intermediaries,Credibility and Incentives to Collude |
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Authors: | Eloïc Peyrache Lucía Quesada |
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Affiliation: | 1. HEC School of Management, Department of Economics and Finance, 1, rue de la Libération‐78351, Jouy en Josas Cedex, France;2. peyrache@hec.fr ;3. Department of Economics, Universidad Torcuato Di Tella, Sáenz Valiente 1010, C1428BIJ Buenos Aires, Argentina;4. lquesada@utdt.edu |
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Abstract: | A seller contracts and potentially colludes with a certification intermediary. We investigate the intermediary’s incentives to collude, her pricing strategy, and the extent to which buyers rely on the intermediary’s announcements. The probability of collusion is an endogenous variable, determined by the intermediary’s pricing strategy. The extent to which the market relies on the intermediary’s reports, the certification price and the intermediary’s profit decrease as the intermediary becomes less patient. By making certification mandatory, the intermediary loses her ability to screen out low‐quality sellers, which increases the probability of collusion. |
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