Markets with untraceable goods of unknown quality: a market failure exacerbated by globalization
AbstractIn markets for many fruits, vegetables, and an increasing number of imported goods, consumers cannot discern the quality of a product prior to purchase and can never identify its producer. Producing high-quality, safe goods is costly for a firm and raises the collective reputation for quality shared with its rivals. Minimum quality standards improve welfare. If consumers observe the country of origin of a product, quality, profits, and welfare increase. Exports from countries with more exporting firms are of lower quality and sell for lower prices. If one country imposes a minimum quality standard on its exports while other countries do not, consumers benefit. As for sellers, the regulation raises the profits of firms in the country with regulation and lowers the profits of firms in countries without regulation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 21874.
Date of creation: 14 Dec 2009
Date of revision:
globalization; quality; collective reputation; minimum quality standards;
Other versions of this item:
- McQuade, Timothy & Salant, Stephen W. & Winfree, Jason, 2010. "Markets with Untraceable Goods of Unknown Quality: A Market Failure Exacerbated by Globalization," Discussion Papers dp-09-31, Resources For the Future.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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