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Standards vs. labels with imperfect competition and asymmetric information

Author

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  • Baltzer, Kenneth

Abstract

I demonstrate that providing information about product quality is not necessarily the best way to address asymmetric information problems when markets are imperfectly competitive. In a vertical differentiation model I show that a Minimum Quality Standard, which retains asymmetric information, generates more welfare than a label, which provides full information.

Suggested Citation

  • Baltzer, Kenneth, 2012. "Standards vs. labels with imperfect competition and asymmetric information," Economics Letters, Elsevier, vol. 114(1), pages 61-63.
    • Handle: RePEc:eee:ecolet:v:114:y:2012:i:1:p:61-63
    DOI: 10.1016/j.econlet.2011.09.032
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    References listed on IDEAS

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    1. Crampes, Claude & Hollander, Abraham, 1995. "Duopoly and quality standards," European Economic Review, Elsevier, vol. 39(1), pages 71-82, January.
    2. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    3. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    4. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Anna Nagurney & Dong Li, 2014. "Equilibria and dynamics of supply chain network competition with information asymmetry in quality and minimum quality standards," Computational Management Science, Springer, vol. 11(3), pages 285-315, July.
    2. Edward J. D. Webb, 2017. "If It’s All the Same to You: Blurred Consumer Perception and Market Structure," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(1), pages 1-25, February.
    3. Hattori, Keisuke & Higashida, Keisaku, 2014. "Misleading advertising and minimum quality standards," Information Economics and Policy, Elsevier, vol. 28(C), pages 1-14.
    4. Olivier Bonroy & Christos Constantatos, 2015. "On the Economics of Labels: How Their Introduction Affects the Functioning of Markets and the Welfare of All Participants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 239-259.
    5. Chang, Jen-Wen, 2020. "Monitoring and competing principals: A double-edged sword," Journal of Economic Theory, Elsevier, vol. 189(C).
    6. Valeria Forlin, 2021. "Optimal Eco‐Label Standards in an Oligopolistic Setting," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(2), pages 682-701, March.
    7. Jianyu Yu & Zohra Bouamra-Mechemache & Angelo Zago, 2018. "What is in a Name? Information, Heterogeneity, and Quality in a Theory of Nested Names," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(1), pages 286-310.
    8. Tzu-Ming Liu & I-Jean Chen & Ho-Ching Jenny Yuan, 2021. "Using Stated Preference Valuation to Support Sustainable Marine Fishery Management," Sustainability, MDPI, vol. 13(9), pages 1-12, April.
    9. Mireille Chiroleu-Assouline, 2016. "Multiple Standards: the Case of the French Building Industry," Policy Papers 2016.08, FAERE - French Association of Environmental and Resource Economists.
    10. Creane, Anthony & Jeitschko, Thomas D. & Sim, Kyoungbo, 2022. "Welfare effects of product certification under latent adverse selection," International Journal of Industrial Organization, Elsevier, vol. 81(C).
    11. Creane, Anthony & Jeitschko, Thomas D. & Sim, Kyoungbo, 2019. "Welfare effects of certification under latent adverse selection," DICE Discussion Papers 312, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    12. repec:gbl:wpaper:2013-01 is not listed on IDEAS
    13. Birg, Laura & Voßwinkel, Jan S., 2014. "Minimum quality standards and compulsory labeling: More than the sum of its parts," University of Göttingen Working Papers in Economics 226, University of Goettingen, Department of Economics.
    14. Luca Macedoni, 2022. "Asymmetric information, quality, and regulations," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 1180-1198, September.
    15. Dorothée Brécard, 2023. "How Corporate–NGO Partnerships Affect Eco-Label Adoption and Diffusion," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(1), pages 233-261, October.
    16. Birg, Laura & Voßwinkel, Jan S., 2018. "Minimum quality standards and compulsory labeling when environmental quality is not observable," Resource and Energy Economics, Elsevier, vol. 53(C), pages 62-78.

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    More about this item

    Keywords

    Minimum quality standard; Label; Asymmetric information; Vertical differentiation; Product quality;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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