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Competition vs. quality in an industry with imperfect traceability

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  • Elodie Rouviere

    ()
    (AgroParisTech)

  • Raphael Soubeyran

    ()
    (INRA, UMR1135 LAMETA, F-34000 Montpellier, France.)

Abstract

We consider an industry where firms produce goods that have different quality levels but firms cannot differentiate themselves from rivals. In this situation, producing low-quality generates a negative externality on the whole industry. This is particularly true when consumers cannot identify producers. In this article, we show that under a "Laissez Faire" situation free entry is not socially optimal and we argue that the imposition of a Minimum Quality Standard (MQS) may induce firms to enter the market.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 4 ()
Pages: 3052-3067

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Handle: RePEc:ebl:ecbull:eb-11-00057

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Keywords: Entry; Externality; Minimum Quality Standard; Quality.;

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References

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  1. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  2. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(6), pages 1328-46, December.
  3. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
  4. BOCCARD, Nicolas & WAUTHY, Xavier, . "Enforcing domestic quality dominance through quotas," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1756, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Paolo Garella & Emmanuel Petrakis, 2008. "Minimum quality standards and consumers’ information," Economic Theory, Springer, Springer, vol. 36(2), pages 283-302, August.
  6. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, Springer, vol. 18(3), pages 235-45, November.
  7. Calvin, Linda, 2007. "Outbreak Linked to Spinach Forces Reassessment of Food Safety Practices," Amber Waves, United States Department of Agriculture, Economic Research Service, United States Department of Agriculture, Economic Research Service, June.
  8. Winfree, Jason A. & McCluskey, Jill J., 2003. "Collective Reputation And Quality," 2003 Annual meeting, July 27-30, Montreal, Canada, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 21927, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  9. Crampes, C. & Hollander, A., 1992. "Duopoly and Quality Standards," Papers, Toulouse - GREMAQ 92.g, Toulouse - GREMAQ.
  10. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
  11. Scarpa, Carlo, 1998. "Minimum quality standards with more than two firms1," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 16(5), pages 665-676, September.
  12. Elodie Rouviere & Raphael Soubeyran & Céline Bignebat, 2010. "Heterogeneous efforts in voluntary programmes on food safety," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 37(4), pages 479-499, December.
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Cited by:
  1. Martínez-Alvarez, V. & García-Bastida, P.A. & Martin-Gorriz, B. & Soto-García, M., 2014. "Adaptive strategies of on-farm water management under water supply constraints in south-eastern Spain," Agricultural Water Management, Elsevier, Elsevier, vol. 136(C), pages 59-67.
  2. Mélanie Jaeck & Robert Lifran & Hubert Stahn, 2012. "Emergence of Organic Farming under Imperfect Competition," AMSE Working Papers 1239, Aix-Marseille School of Economics, Marseille, France.
  3. Baniak Andrzej & Grajzl Peter, 2013. "Equilibrium and Welfare in a Model of Torts with Industry Reputation Effects," Review of Law & Economics, De Gruyter, De Gruyter, vol. 9(2), pages 265-302, October.
  4. Mélanie Jaeck & Robert Lifran & Hubert Stahn, 2012. "Emergence of Organic Farming under Imperfect Competition: Economic Conditions and Incentives," Working Papers, HAL halshs-00793671, HAL.
  5. E. Rouvière & K. Latouche, 2014. "Impact of liability rules on modes of coordination for food safety in supply chains," European Journal of Law and Economics, Springer, Springer, vol. 37(1), pages 111-130, February.

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