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Private label, quality choice and bargaining power in a vertical structure

Listed author(s):
  • Bergès-Sennou, F.
  • Mitraille, S.

We show that a private label is an indirect mean to contract on quality in a vertical structure, and is signed by a downstream firm only when its bargaining power is high. When its bargaining power decreases, sharing the fixed cost of quality in a private label with the upstream firm is not profitable : the label is not implemented, leaving the entire cost to the upstream who in turn under-invests in quality. Public intervention through a minimum quality standard may fail to restore the second-best and even increase the distorstion by deterring the downstream to create the label when its bargaining power high. ...French Abstract : Les auteurs montrent qu'une marque de distributeur (MDD) est un moyen indirect pour contracter sur la qualité dans une structure verticale, et un tel contrat n'est signé que lorsque le pouvoir de négociation de la firme aval est suffisamment élevé. Lorsque le pouvoir de la firme aval décroît, partager le coût fixe de la qualité de la MDD avec la firme amont n'est pas profitable : la MDD n'est pas mise en place, et le coût en qualité est uniquement assuré par la firme amont qui en conséquence sous-investit en qualité. L'intervention publique grâce à l'instauration d'une norme minimale de qualité peut cependant ne pas restaurer la qualité de second rang et même accroître la distorsion en dissuadant la firme aval de créer la MDD lorsque son pouvoir de négociation est élevé.

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Paper provided by French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse) in its series Economics Working Paper Archive (Toulouse) with number 52.

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Length: 37 p.
Date of creation: 2003
Handle: RePEc:rea:inrawp:52
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INRA ESR - BP27 - 31326 Castanet Tolosan cedex - France

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