Informative Certification: Screening vs. Acquisition
Research Seminars: Virtual Market Design SeminarThe paper presented in this Virtual Market Design Seminar studies monopolistic certification in a buyer-seller relationship, explicitly distinguishing between its role as a device for screening versus acquisition. As a screening device, certification discloses soft information about a seller’s private information. As an acquisition device, certification discloses hard information about the good’s quality. Despite being costless, the authors show that, optimally, a monopolistic certifier provides non-maximal information-acquisition, while offering maximal screening. Thus, monopolistic certification exhibits no economic distortions as a screening device, resolving all private information, but provides too little hard information as an acquisition device. While feasible and costless, full information acquisition is suboptimal as it requires excessive information rents. Consequently, market inefficiencies remain due to market uncertainty but not due to private information.
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