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Quality policy, market structure and investment behavior in the food marketing chain

Listed author(s):
  • Hoffmann, Ruben
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    This thesis, consisting of four articles, analyzes quality in relation to consumer demand and market structure, and the potential problem of asset fixity at primary level. All four articles, directly or indirectly, relate to different parts of the food marketing chain. Article I examines country of origin as a quality cue from a consumer perception perspective. This is an empirical article applied to the market for fresh meat in Sweden where the characteristics of consumers are related to how important they perceive the labelling †Swedish†to be in evaluating (i) the eating quality and (ii) the food safety of pork, beef and chicken. Article II examines how ownership structure affects the equilibrium within a two-stage duopoly framework where firms first choose what qualities to produce and then compete in prices. Specifically, cooperatives and investor-owned firms are analyzed. It is shown that firms can have a structural cost advantage due to ownership structure in addition to the high-quality advantage identified in previous literature. The equilibrium outcomes are examined and the policy implications of the different structures are discussed. In a multi-product oligopoly framework article III examines what qualities firms choose to produce and the conditions for when firms choose specialization versus head-to-head competition. The conditions for symmetric and asymmetric equilibria are identified and discussed. It is shown that head-to-head competition rather than specialization is a common outcome and that holes may be left in the product line. Finally, article IV examines the impact of uncertainty on investment behavior in the U.S. hog production using an endogenous threshold model. The results indicate that the investment behavior is characterized by three regimes (investment, disinvestment and inaction) and thus yield support for asset fixity in sow investments. The importance of accounting for investment rigidity when estimating hog supply and variable input demands is highlighted. While quality is not explicitly modelled in article IV, the potential problem of asset fixity examined has implications for quality policy.

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    Paper provided by Swedish University of Agricultural Sciences, Department of Economics in its series Department of Economics publications with number 1117.

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    Date of creation: May 2006
    Handle: RePEc:sua:ekonwp:1117
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