Markets with Untraceable Goods of Unknown Quality: A Market Failure Exacerbated by Globalization

30 Pages Posted: 7 Apr 2010

See all articles by Timothy J. McQuade

Timothy J. McQuade

Harvard University - Department of Economics

Stephen W. Salant

University of Michigan; Resources for the Future

Jason A. Winfree

University of Michigan at Ann Arbor

Multiple version iconThere are 2 versions of this paper

Date Written: April 6, 2010

Abstract

In markets for fruits, vegetables, and many imported goods, consumers cannot discern quality prior to purchase and can never identify the producer. Producing high-quality, safe goods is costly and raises the "collective reputation" for quality shared with rival firms. Minimum quality standards imposed on all firms improve welfare. If consumers can observe the country of origin of a product, quality, profits, and welfare increase. If one country imposes a minimum quality standard on its exports, consumers benefit, the profits of firms in the country with regulation rise, and the profits of firms in countries without regulation fall.

Keywords: collective reputation, quality, minimum quality standards, globalization

JEL Classification: L13, L51

Suggested Citation

McQuade, Timothy J. and Salant, Stephen W. and Winfree, Jason A., Markets with Untraceable Goods of Unknown Quality: A Market Failure Exacerbated by Globalization (April 6, 2010). Available at SSRN: https://ssrn.com/abstract=1585235 or http://dx.doi.org/10.2139/ssrn.1585235

Timothy J. McQuade (Contact Author)

Harvard University - Department of Economics ( email )

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Stephen W. Salant

University of Michigan ( email )

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Resources for the Future ( email )

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Jason A. Winfree

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