Labeling Policies and Market Behavior: Quality Standard and Voluntary Adoption

Abstract

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.

Reference

Lucie Bottega, Philippe Delacote, and Lisette Ibáñez, “Labeling Policies and Market Behavior: Quality Standard and Voluntary Adoption”, Journal of Agricultural and Food Industrial Organization, vol. 7, n. 2, December 2009.