Intermediation Can Replace Certification

We consider a market in which producers and an intermediary have perfect information about the qualities of the goods. Consumers do not observe the qualities. Producers can perfectly reveal that a good is of high quality through certification. This entails socially wasteful costs. Firms can choose whether to sell throufh an intermediary jointly or exclusively or to sell independently (vertical integration). We show that multi-brand retailing, which leads to a redistribution of profits but not to social costs, can fully or partially replace certification by signaling product quality.