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On the economics of labels : a review of the theoretical literature

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  • Bonroy, O.
  • Constantatos, C.

Abstract

Are labels good or bad for consumers and firms? In this essay we analyze the label's nature as information revealing mechanism and explore the theoretical literature on labeling with respect to the following issues: i) the effects of labels on market structure, ii) the distortions due to the certification process, and iii) the level at which different agencies wish the label to be set at. For each issue, we highlight the key economic mechanisms, their impact on market equilibrium and how they affect all actors' payoffs. The latter gives rise to the political economy of labels, i.e., lobbying activities in favor of, or resisting the imposition of labels, and/or trying to infl uence its level. We conclude by identifying issues for further research.

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Paper provided by Grenoble Applied Economics Laboratory (GAEL) in its series Working Papers with number 2013-01.

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Date of creation: 2013
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Handle: RePEc:gbl:wpaper:2013-01

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Keywords: LABEL; IMPERFECT CONSUMER INFORMATION; VERTICAL DIFFERENTIATION;

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