Certification intermediaries, from credit rating agencies to auditing firms, serve as essential gatekeepers in modern markets. In their recent analysis, Gorkem Celik (ESSEC Business School) and Roland Strausz (HU-Berlin, Project B02) investigate how these monopolistic entities provide information through two distinct channels: screening a seller’s existing private information and acquiring new, verifiable data through testing or investigation. The authors’ original results reveal a fundamental divergence in how these channels are utilized to maximize profit. They demonstrate that a profit-maximizing certifier will always employ maximal screening, completely eliminating the information asymmetry regarding what the seller already knows. Simultaneously, the certifier will deliberately restrict the acquisition of new information, leaving significant market uncertainties unresolved.
The economic mechanism driving this result is the way each channel interacts with information rents. Screening creates value by enabling perfect price discrimination and improved buyer-seller matching; value that the certifier can capture entirely. Because moving to full separation via screening increases profit without necessarily increasing the rents paid to sellers, it functions as a tool for free value creation. In contrast, providing hard information is inherently costly for the certifier. When low-quality sellers receive highly informative certificates, high-quality sellers must be paid larger information rents to prevent them from mimicking lower types. This rent-amplification mechanism creates a trade-off: while hard information increases aggregate surplus, it also increases the costs of maintaining incentive compatibility. Consequently, the certifier restricts information acquisition to minimize these costly rents.
These findings offer a fresh perspective on market inefficiencies and regulatory design. The research suggests that market distortions do not necessarily arise from the failure to share existing knowledge, but from a deliberate preservation of market uncertainty. For instance, “rating inflation” can be viewed not as strategic manipulation, but as a symptom of inadequate information production. For scholars and journalists, this implies that regulatory focus should shift from the transparency of screening mechanisms to the mandates for actual data acquisition. By distinguishing between revealing secrets and generating new truths, the authors provide a rigorous explanation for why even cost-free information technologies may fail to resolve market uncertainty.
Link: Informative Certification: Screening vs. Acquisition
Explainer Video: Why Certifiers Limit Facts
