Raising rivals’ costs strategy: test on two LAFS in Europe

Some Localised Agro-Food Systems (LAFS) are traditionally qualified as success stories (Comté PDO in France, Gruyere PDO in Switzerland, Parmigiano Reggiano PDO in Italy), whilst other PDOs (as for example the Cantal PDO from France) pay the same price for the milk as standard milk. The price difference may reach between 10 and 25% over a long period. To explain this difference, we assume that the agents who make up the LAFS developed a collective action to protect their localized cheese production system against unfair competition and to promote their product outside its region of origin. The aim of this communication is to shed light on levers which the agents activate to assure their uniqueness is irrevocable, and uphold the benefits of their LAFS. We propose to discuss the idea that the search for market power based on the strategy of raising rivals’ costs may be used even outside a situation of vertical integration or a situation in which pressure is applied to suppliers to challenge competitors. We assume that some companies within the LAFS have sufficient control on the rules governing the organization of the traditional system to benefit from it. They also succeed in protecting a kind of relationship between business companies. The Raising Rivals’ Costs theory helps to analyze the economic consequences of the legal set-up implementation and of its control by some companies. Indeed, we show that the collective control of the rules which are set up in the PDO legal framework explain the difficulties met by rivals to stand out through an alternative and independent production system based on the costs leadership strategy. The collective set up of institutions and rules help the agents to achieve a collective competitive advantage in which every agent benefits individually. This is the strategy developed in Europe and particularly for two PDO Localised Agro-cheese Systems: Comté PDO for France and Gruyère PDO for Switzerland.