IDEAS home Printed from https://ideas.repec.org/p/gbl/wpaper/200709.html
   My bibliography  Save this paper

On the use of labels in credence goods markets

Author

Listed:
  • Bonroy, O.
  • Constantatos, C.

Abstract

We analyze credence goods markets in the case of two firms. Consumers know that the quality of the good varies but do not know which firm is of high quality. First, we show that the high quality producer may be unable to monopolize the market, or even to survive in some cases, in situations where it is efficient and trusted by all consumers. Second, although a label restoring full information improves welfare, it may also reduce both firms? profits by intensifying competition. Since even the high quality producer may not wish to label its product, in such cases the label must be mandatory. Third, an imperfect label which moves everybody?s beliefs closer to the truth without restoring full information may produce adverse results on market structure and welfare, either by increasing or by reducing the variance of beliefs.

Suggested Citation

  • Bonroy, O. & Constantatos, C., 2007. "On the use of labels in credence goods markets," Working Papers 200709, Grenoble Applied Economics Laboratory (GAEL).
    • Handle: RePEc:gbl:wpaper:200709
    as

    Download full text from publisher

    File URL: https://gael.univ-grenoble-alpes.fr/sites/gael/files/doc-recherche/WP/A2007/gael2007-18.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kathleen Segerson, 1999. "Mandatory versus voluntary approaches to food safety," Agribusiness, John Wiley & Sons, Ltd., vol. 15(1), pages 53-70.
    2. Carl Shapiro, 1983. "Optimal Pricing of Experience Goods," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 497-507, Autumn.
    3. Murray Fulton & Konstantinos Giannakas, 2004. "Inserting GM Products into the Food Chain: The Market and Welfare Effects of Different Labeling and Regulatory Regimes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 42-60.
    4. Winand Emons, 1997. "Credence Goods and Fraudelent Experts," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 107-119, Spring.
    5. Stephan Marette & Jean‐Christophe Bureau & Estelle Gozlan, 2000. "Product Safety Provision and Consumers' Information," Australian Economic Papers, Wiley Blackwell, vol. 39(4), pages 426-441, December.
    6. 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.
    7. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    8. Crespi, John M. & Marette, Stephan, 2003. "Some Economic Implications Of Public Labeling," Journal of Food Distribution Research, Food Distribution Research Society, vol. 34(3), pages 1-12, November.
    9. Jean J. Gabszewicz & Isabel Grilo, 1992. "Price Competition When Consumersare Uncertain About Which Firm Sells Which Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 629-650, December.
    10. Alessandro Lizzeri, 1999. "Information Revelation and Certification Intermediaries," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 214-231, Summer.
    11. Emons, Winand, 2001. "Credence goods monopolists," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 375-389, March.
    12. Marette, Stephan & Bureau, Jean-Christophe & Gozlan, Estelle, 2000. "Product Safety Provision and Consumers' Information," Australian Economic Papers, Wiley Blackwell, vol. 39(4), pages 426-441, December.
    13. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
    14. Kathleen Segerson, 1998. "Mandatory vs. Voluntary Approaches to Food Safety," Food Marketing Policy Center Research Reports 036, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    15. John M. Crespi & St)phan Marette, 2001. "How Should Food Safety Certification be Financed?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 852-861.
    16. Brian Roe & Ian Sheldon, 2007. "Credence Good Labeling: The Efficiency and Distributional Implications of Several Policy Approaches," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 1020-1033.
    17. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-1483, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. 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 681-701, December.
    3. Auriol, Emmanuelle & Schilizzi, Steven G.M., 2015. "Quality signaling through certification in developing countries," Journal of Development Economics, Elsevier, vol. 116(C), pages 105-121.
    4. repec:gbl:wpaper:2013-01 is not listed on IDEAS
    5. Yokessa, Maïmouna & Marette, Stéphan, 2019. "A Review of Eco-labels and their Economic Impact," International Review of Environmental and Resource Economics, now publishers, vol. 13(1-2), pages 119-163, April.
    6. Cuffaro, Nadia & Di Giacinto, Marina, 2015. "Credence goods, consumers’ trust in regulation and high quality exports," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 4(2), pages 1-19, August.
    7. Saak, Alexander E., 2003. "Identity Preservation And False Non-Gmo Labeling In The Food Supply Chain," 2003 Annual meeting, July 27-30, Montreal, Canada 22182, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Langinier Corinne & Babcock Bruce A., 2008. "Agricultural Production Clubs: Viability and Welfare Implications," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(1), pages 1-31, December.
    9. Bonroy, Olivier & Lemarié, Stéphane, 2012. "Downstream labeling and upstream price competition," European Economic Review, Elsevier, vol. 56(3), pages 347-360.
    10. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2004. "Conflicts of interest, information provision and competition in banking," Economics Working Papers 760, Department of Economics and Business, Universitat Pompeu Fabra.
    11. Dai, Yunhao & Kong, Dongmin & Wang, Maobin, 2013. "Investor reactions to food safety incidents: Evidence from the Chinese milk industry2We thank Colin Poulton (Managing Editor), two anonymous referees, Martin Qiu, Shasha Liu, and Yan Sheng for helpful," Food Policy, Elsevier, vol. 43(C), pages 23-31.
    12. Vincze, János, 2010. "Miért és mitől védjük a fogyasztókat?. Aszimmetrikus információ és/vagy korlátozott racionalitás [Asymmetric information and/or bounded rationality: why are consumers protected and from what?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 725-752.
    13. Stéphan Marette, 2007. "Minimum safety standard, consumers’ information and competition," Journal of Regulatory Economics, Springer, vol. 32(3), pages 259-285, December.
    14. Prosper Raynold, 2013. "Fellowship, social network externalities, and management of religious risk," Rationality and Society, , vol. 25(2), pages 229-260, May.
    15. Roe, Brian E. & Sheldon, Ian M., 2001. "The Impacts of Labeling on the Production and Trade of Vertically Differentiated Goods with Process Attributes," 2001 Annual meeting, August 5-8, Chicago, IL 20451, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    16. Gaëlle Balineau & Ivan Dufeu, 2010. "Are Fair Trade Goods Credence Goods? A New Proposal, with French Illustrations," Journal of Business Ethics, Springer, vol. 92(2), pages 331-345, April.
    17. Pim Heijnen, 2013. "Informative advertising by an environmental group," Journal of Economics, Springer, vol. 108(3), pages 249-272, April.
    18. Koji Domon & Alessandro Melcarne & Giovanni B. Ramello, 2022. "Fake & original: the case of Japanese food in Southeast Asian countries," European Journal of Law and Economics, Springer, vol. 54(2), pages 327-347, October.
    19. Bester, Helmut & Ouyang, Yaofu, 2018. "Optimal procurement of a credence good under limited liability," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 96-129.
    20. David Bardey & Denis Gromb & David Martimort & Jérôme Pouyet, 2020. "Controlling Sellers Who Provide Advice: Regulation and Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 409-444, September.
    21. Fabrice Etilé & Sabrina Teyssier, 2012. "Signaling Corporate Social Responsibility: Third-Party Certification vs. Brands," PSE Working Papers halshs-00736551, HAL.

    More about this item

    Keywords

    CREDENCE GOODS; INCOMPLETE INFORMATION; QUALITY; LABEL; DIFFERENTIATION;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gbl:wpaper:200709. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Adrien Hervouet (email available below). General contact details of provider: https://edirc.repec.org/data/inragfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.