The Strategic Use of Private Quality Standards in Food Supply Chains

Abstract:     
This paper highlights the strategic role that private quality standards play in food supply chains. Considering two symmetric retailers that are exclusively supplied by a finite number of producers and endogenizing the producers' delivery choice, we show that there exist two asymmetric equilibria in the retailers' quality requirements. The asymmetry is driven by both the retailers' incentive to raise their buyer power and the retailers' competition for suppliers. We find that the use of private quality standards is detrimental to social welfare. A public minimum quality standard can remedy this unfavorable welfare outcome.

Number of Pages in PDF File: 31

Keywords: private quality standards, vertical relations, buyer power, food supply chain

JEL Classification: L15, L42, Q13

working papers series