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Quality Choice, Competition and Vertical Relationship in a Market of Protected Designation of Origin

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  • Bouamra-Mechemache, Zohra
  • Yu, Jianyu

Abstract

Protected Designation of Origin (PDO) is a public label that is used by the European Union as a tool to sustain the competitiveness and the profitability of agricultural sector and in particular to maintain rural activity in less favored areas. However, in PDO supply chain, many farmers deal with relatively few processing firms. In this framework, it is not clear that producers under such protective policy would have incentive to adopt costly measures to improve their product qualities and accept the restrictions on their production practices. Taking into account the vertical structure of the PDO supply chain, we develop a model of oligopoly and oligopsony competition to investigate the conditions under which PDO producers set high quality requirements on the production of the agricultural input. We find that even if raising quality does not imply additional willingness to pay from consumers, there is still scope for the PDO producers to choose a higher level of quality than the minimum quality standard. The outcome depends on the demand and technology characteristics, which will affect the oligopoly and oligopsony power of processors. In particular, farmers will prefer a higher quality standard than processors when the demand for PDO market is inelastic and the increase in quality generates an additional reduction in farmers’ return to scale.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114264.

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Date of creation: 2011
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Handle: RePEc:ags:eaae11:114264

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Keywords: International Relations/Trade;

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  1. Lence, Sergio H. & Marette, Stephan & Hayes, Dermot J. & Forster, Bruce A., 2007. "Collective Marketing Arrangements for Geographically Differentiated Agricultural Products: Welfare Impacts and Policy Implications," Staff General Research Papers 12758, Iowa State University, Department of Economics.
  2. Dermot J. Hayes & Sergio H. Lence & Andrea Stoppa, 2004. "Farmer-owned brands?," Agribusiness, John Wiley & Sons, Ltd., vol. 20(3), pages 269-285.
  3. Langinier, Corinne & Babcock, Bruce A., 2006. "Agricultural Production Clubs: Viability and Welfare Implications," Staff General Research Papers 12670, Iowa State University, Department of Economics.
  4. Moschini, GianCarlo & Menapace, Luisa & Pick, Daniel, 2008. "Geographical Indications and the Competitive Provision of Quality in Agricultural Markets," Staff General Research Papers 12858, Iowa State University, Department of Economics.
  5. Stéphan Marette & John Crespi, 2003. "Can Quality Certification Lead to Stable Cartels?," Review of Industrial Organization, Springer, vol. 23(1), pages 43-64, August.
  6. Zohra Bouamra-Mechemache & Jad Chaaban, 2010. "Determinants of Adoption of Protected Designation of Origin Label: Evidence from the French Brie Cheese Industry," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 225-239.
  7. Zohra Bouamra-Mechemache & Jad Chaaban, 2010. "Protected Designation of Origin Revisited," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 8(1), pages 5.
  8. Marette, Stephan & Crespi, John M & Schiavina, Allesandra, 1999. "The Role of Common Labelling in a Context of Asymmetric Information," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 26(2), pages 167-78, June.
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