Manufacturer Certification in Second-Hand Markets
We analyse an overlapping generations model of manufacturer certification in durable goods markets with asymmetric information about the quality of used goods. The functioning of second-hand markets has two effects on markets for new goods, a substitution and a resale value effect. Through certification, manufacturers reduce adverse selection in second-hand markets and extract resulting rents through the markets for new goods. Certification may increase profits at the expense of social welfare, by increasing average quality while decreasing trading volume.