Labeling Policies and Market Behavior: Quality Standard and Voluntary Label Adoption
Journal of Agricultural & Food Industrial Organization, V7-03
Posted: 10 Jan 2010
Date Written: Decamber 1, 2010
This paper focus’s on the third-party certifiers’ strategy when choosing a required label quality, and the consequent market outcome. We consider two different objectives of the certifier: maximizing global demand for the labeled product (wide public policy), or maximizing global quality of the market (global quality policy). In a duopoly set up with firms bearing different costs with respect to quality provision, firms always opt for differentiation strategies: Only one adopts the label. However, the labeling firm is not necessarily the most efficient one. In the case of a wide public policy, the efficient firm will produce labeled products only if costs of labeling are sufficiently low. In the case of a global quality policy, the low cost firm will always push the high-cost firm into the labeling program.
Keywords: labeling, product quality, Bertrand duopoly
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