“Evolution of Professional Certification Markets:Evidence from Field Experiments” by Ginger Z. JIN
Ginger Z. JIN
University of Maryland
John A. LIST
Market economies devote substantial resources to certify product quality. While the theoretical literature provides a rich assortment of equilibrium predictions on the informational role of certifiers, empirical investigation remains scant. This study uses field experiments to investigate issues related to an evolving market of professional certification. Via implementation of two field experiments we obtain several unique insights. First, casual observation suggests that the evolution of our chosen certification market—the sportscard grading industry—is consistent with theoretical predictions: the first entrant adopted a coarse grading scheme and subsequent entrants adopted finer grading systems. Second, even under the coarse grading system, the monopolist certifier added valuable information to the marketplace, a result that is inconsistent with theory. Yet it is important to note that the monopoly certification intermediary reveals no information to experienced market participants. Third, the second and third entrants in the industry sharpen grading precision and adopt finer grading cutoffs in an attempt to differentiate from the incumbent, a result consonant with theory. Finally, we find a consistent mapping between prevailing market prices and our empirically estimated grading cutoffs and signal precision, a result suggestive of a high degree of informational efficiency in this particular market.