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Downstream labeling and upstream price competition

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  • Bonroy, O.
  • Lemarié, S.

Abstract

The paper analyses the economic consequences of labeling in a setting with two vertically related markets. Labeling on the downstream market affects upstream price competition through two effects : a differentiation effect and a ranking effect. The magnitude of these two effects determines who in the supply chain will receive the benefits and who will bear the burden of labeling. For instance, whenever the ranking effect dominates the differentiation effect, the low quality upstream firm loses from labeling while all downstream actors are individually better off. By decreasing the low quality input price, the label acts then as a subsidy which assures an increase of the downstream market welfare. This analysis furthers our understanding of the economic consequences of the public labeling in cases like restaurants or GMOs.

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File URL: http://www.grenoble.inra.fr/Docs/pub/A2010/gael2010-01.pdf
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Bibliographic Info

Paper provided by Grenoble Applied Economics Laboratory (GAEL) in its series Working Papers with number 201001.

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Date of creation: 2010
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Handle: RePEc:gbl:wpaper:201001

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Keywords: LABEL; IMPERFECT CONSUMER INFORMATION; VERTICAL PRODUCT DIFFERENTIATION; VERTICAL RELATIONS; REGULATION;

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Citations

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Cited by:
  1. Bonroy, O. & Constantatos, C., 2013. "On the economics of labels : a review of the theoretical literature," Working Papers 2013-01, Grenoble Applied Economics Laboratory (GAEL).
  2. E. Bacchiega & O. Bonroy, 2012. "Vertical relations and number of channels in quality-differentiated markets," Working Papers wp823, Dipartimento Scienze Economiche, Universita' di Bologna.

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