A label that imperfectly signals product quality is analyzed in a Bertrand duopoly with differentiated products. Considering strategic firms when certification is imperfect has some important implications. A separating equilibrium can be sustained with a free test due to price strategic complementarity. When the certifier’s objective is welfare, and the test cost is sufficiently small, the most appropriate test is that which is subject to a low rate of false negatives.
Asymmetric informationQuality certificationImperfect testLabelingBertrand duopolySeparating equilibrium;
- C72: Noncooperative Games
- D43: Oligopoly and Other Forms of Market Imperfection
- D60: General
- D82: Asymmetric and Private Information • Mechanism Design
- L15: Information and Product Quality • Standardization and Compatibility
Economics Letters, vol. 178, 2019, pp. 33–36