Accreditation in a differentiated duopoly

Abstract

Accreditation is increasingly important worldwide; however, some industries have higher accreditation rates than others. We suggest a duopoly model to discuss how market characteristics affect the incentive for firms to seek accreditation. The discussion relates to the effects accreditation might have on the costs and demands in the markets, the degree of product differentiation (addressing both substitutable and complementary goods), type of competition (various Cournot and Bertrand games), and welfare for society. It follows that markets with high accreditation rates are either characterized by fierce competition (price competition in substitutable goods) or by a high degree of coordination (complementarity).

Accreditation in regulated markets

“…In our model, the same conclusion follows from a reduction in the disutility per distance, that is, a lower t. A difference between the two models, however, is that in our set‐up, due to a given market size, a more aggressive “race for accreditation” is experienced . Additionally, in Grepperud et al (2019), in contrast to our analysis, the net benefits from becoming accredited are typically higher because the price is sensitive to a higher product quality (a higher demand).…”

“…Grepperud et al (2019) discusses how oligopolistic competition (duopoly) may affect the incentives for firms to seek accreditation. This work, however, is a more general than ours because studying the role of product differentiation (substitutable and complementary goods) and type of competition (various Cournot and Bertrand games).…”

“…For substitutable goods, for example, the two studies yield the same type of results. Grepperud et al (2019) finds that the closer to perfect substitutes, the higher the accreditation incentives for firms engaging in Cournot and Bertrand competition. In our model, the same conclusion follows from a reduction in the disutility per distance, that is, a lower t. A difference between the two models, however, is that in our set‐up, due to a given market size, a more aggressive “race for accreditation” is experienced .…”

“…Grepperud et al (2019) undertakes a welfare analysis for the case where accreditation does not yield any “true” increase in product quality but where the consumers falsely believe in such improvements (consumer misperceptions). In this case, as long as accreditation costs are positive, any equilibria that contain one or more firms that seek accreditation will represent a socially undesirable outcome.…”

“…The economic literature on the demand for accreditation is scarce. One exception is Grepperud, Matiesen, and Pedersen (2019) that apply an oligopoly model to analyze how substitutable and complementary goods (product differentiation) and type of competition (Cournot and Bertrand) affect accreditation incentives in simultaneous and nonsimultaneous games. The firms are unregulated and make their accreditation decisions in a competitive environment where prices and quantities are endogenous.…”