Downstream labeling and upstream competition

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Downstream labeling and upstream competition

Author Info

Bonroy, O.
Lemarie, S.

Additional information is available for the following registered author(s):

Olivier Bonroy

Abstract

This paper analyses the impact of labeling in a context where the products come from a supply chain. We consider a case where there is an information problem about product quality in the downstream part of the chain, but not in the upstream part. We show that the implementation of a label to solve this information problem affects competition in the upstream part of the chain. In particular, competition may be softened up to a point where both the high- and the low-quality upstream suppliers benefit from labeling while all the intermediary producers or final consumers lose from labeling. This result is established on the basis of a simple model with two vertically related markets (a competitive downstream market which is supplied by an upstream duopoly) where the quality of the downstream output is determined by the quality of the upstream input.

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Paper provided by Grenoble Applied Economics Laboratory (GAEL) in its series Working Papers with number 200804.

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Date of creation: 2008
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Handle: RePEc:gbl:wpaper:200804

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Find related papers by JEL classification:
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-12-07 (All new papers)
NEP-COM-2008-12-07 (Industrial Competition)
NEP-MIC-2008-12-07 (Microeconomics)
NEP-MKT-2008-12-07 (Marketing)

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Brian Roe & Ian Sheldon, 2007. "Credence Good Labeling: The Efficiency and Distributional Implications of Several Policy Approaches," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 89(4), pages 1020-1033, November. [Downloadable!] (restricted)
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Other versions:
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Paolo Garella & Emmanuel Petrakis, 2008. "Minimum quality standards and consumers’ information," Economic Theory, Springer, vol. 36(2), pages 283-302, August. [Downloadable!] (restricted)
Other versions:
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Boom, Anette, 1995. "Asymmetric International Minimum Quality Standards and Vertical Differentiation," Journal of Industrial Economics, Blackwell Publishing, vol. 43(1), pages 101-19, March. [Downloadable!] (restricted)
Olivier Bonroy & Christos Constantatos, 2008. "On the use of labels in credence goods markets," Journal of Regulatory Economics, Springer, vol. 33(3), pages 237-252, June. [Downloadable!] (restricted)
Other versions:
- Bonroy, O. & Constantatos, C., 2007. "On the use of labels in credence goods markets," Working Papers 200709, Grenoble Applied Economics Laboratory (GAEL). [Downloadable!]

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