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Competition vs. quality in an industry with imperfect traceability


  • Elodie Rouviere

    () (AgroParisTech)

  • Raphael Soubeyran

    () (INRA, UMR1135 LAMETA, F-34000 Montpellier, France.)


We consider an industry where firms produce goods that have different quality levels but firms cannot differentiate themselves from rivals. In this situation, producing low-quality generates a negative externality on the whole industry. This is particularly true when consumers cannot identify producers. In this article, we show that under a "Laissez Faire" situation free entry is not socially optimal and we argue that the imposition of a Minimum Quality Standard (MQS) may induce firms to enter the market.

Suggested Citation

  • Elodie Rouviere & Raphael Soubeyran, 2011. "Competition vs. quality in an industry with imperfect traceability," Economics Bulletin, AccessEcon, vol. 31(4), pages 3052-3067.
  • Handle: RePEc:ebl:ecbull:eb-11-00057

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    References listed on IDEAS

    1. Scarpa, Carlo, 1998. "Minimum quality standards with more than two firms1," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 665-676, September.
    2. Crampes, Claude & Hollander, Abraham, 1995. "Duopoly and quality standards," European Economic Review, Elsevier, vol. 39(1), pages 71-82, January.
    3. Jean Tirole, 1996. "A Theory of Collective Reputations (with applications to the persistence of corruption and to firm quality)," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 1-22.
    4. Paolo Garella & Emmanuel Petrakis, 2008. "Minimum quality standards and consumers’ information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(2), pages 283-302, August.
    5. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-1346, December.
    6. Nicolas Boccard & Xavier Wauthy, 2005. "Enforcing Domestic Quality Dominance through Quotas," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 250-261, May.
    7. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-245, November.
    8. Calvin, Linda, 2007. "Outbreak Linked to Spinach Forces Reassessment of Food Safety Practices," Amber Waves, United States Department of Agriculture, Economic Research Service, June.
    9. Henson, Spencer & Caswell, Julie, 1999. "Food safety regulation: an overview of contemporary issues," Food Policy, Elsevier, vol. 24(6), pages 589-603, December.
    10. Jason A. Winfree & Jill J. McCluskey, 2005. "Collective Reputation and Quality," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 206-213.
    11. Elodie Rouviere & Raphael Soubeyran & Céline Bignebat, 2010. "Heterogeneous efforts in voluntary programmes on food safety," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 37(4), pages 479-499, December.
    12. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
    13. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
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    Cited by:

    1. E. Rouvière & K. Latouche, 2014. "Impact of liability rules on modes of coordination for food safety in supply chains," European Journal of Law and Economics, Springer, vol. 37(1), pages 111-130, February.
    2. Jaeck Mélanie & Lifran Robert & Stahn Hubert, 2014. "Emergence of Organic Farming under Imperfect Competition: Economic Conditions and Policy Instruments," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 12(1), pages 1-14, January.
    3. Baniak Andrzej & Grajzl Peter, 2013. "Equilibrium and Welfare in a Model of Torts with Industry Reputation Effects," Review of Law & Economics, De Gruyter, vol. 9(2), pages 265-302, October.
    4. Mélanie Jaeck & Robert Lifran & Hubert Stahn, 2012. "Emergence of Organic Farming under Imperfect Competition: Economic Conditions and Incentives," Working Papers halshs-00793671, HAL.
    5. Mélanie Jaeck & Robert Lifran & Hubert Stahn, 2012. "Emergence of Organic Farming under Imperfect Competition," AMSE Working Papers 1239, Aix-Marseille School of Economics, Marseille, France.
    6. Rouvière, Elodie, 2016. "Small is beautiful: firm size, prevention and food safety," Food Policy, Elsevier, vol. 63(C), pages 12-22.
    7. repec:kap:jeczfn:v:121:y:2017:i:2:d:10.1007_s00712-017-0527-7 is not listed on IDEAS
    8. repec:eee:jfpoli:v:69:y:2017:i:c:p:135-144 is not listed on IDEAS
    9. Martínez-Alvarez, V. & García-Bastida, P.A. & Martin-Gorriz, B. & Soto-García, M., 2014. "Adaptive strategies of on-farm water management under water supply constraints in south-eastern Spain," Agricultural Water Management, Elsevier, vol. 136(C), pages 59-67.

    More about this item


    Entry; Externality; Minimum Quality Standard; Quality.;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy


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