Raising the Bar: Certification Thresholds and Market Outcomest

Certification of sellers by trusted third parties helps alleviate infor-mation asymmetries in markets, yet little is known about the impact of a certification's threshold on market outcomes. Exploiting a pol-icy change on eBay, we study how a more selective certification threshold affects the distribution of quality and incumbent behav-ior. We develop a stylized model that shows how changes in selec-tivity change the distribution of quality and prices in markets. Using rich data from hundreds of online categories on eBay.com, we find support for the model's hypotheses. Our results help inform the design of certification selectivity in electronic and other markets.