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Location Choice as a Signal for Product Quality: The Economics of 'Made in Germany'

Author

Listed:
  • Justus Haucap
  • Christian Wey
  • Jens F. Barmbold

Abstract

In the literature on international marketing it is generally agreed upon that the location of production has considerable effects on consumers' beliefs about product quality. In this paper, a rational choice explanation for this fact is offered. Due to differences in country-specific costs (such a high wages and taxes) and coutnry exit costs (such as compulsory social plans), location choice can act as a signaling device for product quality in the sense that high country-specific costs signal high product quality. The 'Made-in' label may be especially relevant as a signal if sinking resources before entering the market is not posible due to capital market constraints. Furthermore, potential implications for geographic labeling laws are explored.

Suggested Citation

  • Justus Haucap & Christian Wey & Jens F. Barmbold, 1997. "Location Choice as a Signal for Product Quality: The Economics of 'Made in Germany'," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 153(3), pages 510-510, September.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(199709)153:3_510:lcaasf_2.0.tx_2-e
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    Citations

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    Cited by:

    1. Koert Van Ittersum & Matthew T. G. Meulenberg & Hans C. M. Van Trijp & Math J. J. M. Candel, 2007. "Consumers’ Appreciation of Regional Certification Labels: A Pan-European Study," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(1), pages 1-23, February.
    2. Chisik, Richard, 2003. "Export industry policy and reputational comparative advantage," Journal of International Economics, Elsevier, vol. 59(2), pages 423-451, March.
    3. Haucap, Justus, 2010. "Steuerharmonisierung oder Steuerwettbewerb in Europa?," DICE Ordnungspolitische Perspektiven 09, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    4. Awada, Lana & Yiannaka, Amalia, 2006. "Consumer purchasing decisions and welfare under country of origin. Labelling regulation," 98th Seminar, June 29-July 2, 2006, Chania, Crete, Greece 10038, European Association of Agricultural Economists.
    5. Loureiro, Maria L. & Umberger, Wendy J., 2002. "Estimating Consumer Willingness-To-Pay For Country Of-Origin-Labels For Beef Products," 2002 Annual meeting, July 28-31, Long Beach, CA 19745, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Andrea Ascani & Riccardo Crescenzi & Simona Iammarino, 2015. "Economic Institutions and the Location Strategies of European Multinationals in their Geographical Neighbourhood," LEQS – LSE 'Europe in Question' Discussion Paper Series 97, European Institute, LSE.
    7. Klaus Heine, 2003. "Kompetitiver Föderalismus auch für das öffentliche Gut "Recht"?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 72(3), pages 472-484.
    8. 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.
    9. Wolfgang Kerber & Roger Van den Bergh, 2008. "Mutual Recognition Revisited: Misunderstandings, Inconsistencies, and a Suggested Reinterpretation," Kyklos, Wiley Blackwell, vol. 61(3), pages 447-465, August.
    10. Maria Luz Loureiro & Jill J. McCluskey, 2000. "Assessing consumer response to protected geographical identification labeling," Agribusiness, John Wiley & Sons, Ltd., vol. 16(3), pages 309-320.
    11. Loureiro, Maria L. & Umberger, Wendy J., 2003. "Consumer Response To Country-Of-Origin Labeling Program In The Context Of Heterogenous Preferences," 2003 Annual meeting, July 27-30, Montreal, Canada 22129, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Giovanni Anania & Rosanna Nisticò, 2004. "Public Regulation as a Substitute for Trust in Quality Food Markets: What if the Trust Substitute cannot be Fully Trusted?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(4), pages 681-681, December.
    13. Kerstin Pull, 2002. "Labour Market Regulation and Foreign Direct Investment: US multinationals in Germany and the UK," IAAEG Discussion Papers until 2011 200204, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    14. Awada, Lana & Yiannaka, Amalia, 2012. "Consumer perceptions and the effects of country of origin labeling on purchasing decisions and welfare," Food Policy, Elsevier, vol. 37(1), pages 21-30.
    15. Ascani, Andrea & Crescenzi, Riccardo & Iammarino, Simona, 2016. "Economic institutions and the location strategies of European multinationals in their geographic neighborhood," LSE Research Online Documents on Economics 65496, London School of Economics and Political Science, LSE Library.
    16. Haucap, Justus & Wey, Christian & Barmbold, Jens, 2000. "Location costs, product quality and implicit franchise contracts," Journal of International Economics, Elsevier, vol. 52(1), pages 69-87, October.
    17. Loureiro, Maria L. & Umberger, Wendy J., 2003. "Estimating Consumer Willingness to Pay for Country-of-Origin Labeling," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 0(Number 2), pages 1-15, August.
    18. Zulug, Aslı & Miran, Bülent & Tsakiridou, Efthimia, 2015. "Consumer Preferences and Willingness to Pay for Country of Origin Labeled Product in Istanbul," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 0(Issue 2), pages 1-10.
    19. Justus Haucap & Christian Wey, 1999. "Standortwahl als Franchisingproblem," CIG Working Papers FS IV 99-08, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).

    More about this item

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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