Effectiveness Of Third-party Certification For Credence Goods Considering Consumers’ And Firms’ Behavior Preference

Credence goods are those products whose quality attributes are difficult to be recognized even after using, such as organic agricultural products, green food, medical services and lawyer consulting. In recent years, quality issues of credence goods outbreak frequently, seriously affecting people’s lives and health. In reality, the root cause is the information asymmetry between sellers and consumers. Therefore, many scholars emphasize the importance of providing quality information from third-party certification agencies.As an important credence goods quality control tool, the third-party certification can solve the problem of information asymmetry effectively, promote stable market, reduce market transaction costs and improve market efficiency. In recent years, with reference to international advanced product standards and technical requirements, Chinese government promotes and popularizes the certification system for credence goods vigorously. Now the certification system plays an increasingly important role in the market economy. However, The situation that high certification industry potential profit, low entrance barriers and imperfect certification legal mechanism, etc., makes quality issues outbreak frequently and damage consumers’ interests seriously.Considering the reality of customers’ learning ability, this paper firstly constructs the signaling game about quality certification of credence goods under the two-stage dynamic and the infinite repeated situations, analyzes the existing condition of separating equilibrium under different games. Then we take the type of boundedly rational consumers into consideration and analyzes how the proportion of boundedly rational consumers influences the effectiveness of the voluntary certification mechanisms with a duopoly game model between high-quality and low-quality firms. Finally we take Hayek’s duality viewpoint of the society order as reference, and build an evolution game model about the credence goods firms, and analyzes the evolution of the firms’ production behavior under the inner and external regulations.The results reveal that:(1) The certification cost has a significant effect on the effective market separation, certification cost scopes to implement effective market separation is positively related to the disguised cost and customers’ learning ability and negatively related to the difference of production cost. Comparing to the two-stage dynamic game, the infinite repeat game has a larger scope of certification cost to effective market separation, and is positively related to discount coefficient.(2) The change of the boundedly rational consumers proportion will lead to different certification behaviors and different market equilibrium. The existence of boundedly rational consumers is an important factor of the failure of voluntary certification mechanism.(3) High accuracy is helpful for a healthier market while low accuracy will result in the firms falling into the dilemma of producing low-quality products.This paper also provides a series of valuable implications for management practice.(1) The media can conduct some education and training to enhance consumers’ identification ability.(2)Compared with the voluntary certification system, the establishment of a mandatory certification system can better benefit Chinese consumers.(3)The government must play a more active role to design an external regulation to make up for internal rules.(4)The certification agencies should increase the threshold and conditions for firms to obtain quality certification.