Downstream labeling and upstream competition

Olivier Bonroy () and S. Lemarie

Working Papers from Grenoble Applied Economics Laboratory (GAEL)

Abstract: This paper analyses the impact of labeling in a context where the products come from a supply chain. We consider a case where there is an information problem about product quality in the downstream part of the chain, but not in the upstream part. We show that the implementation of a label to solve this information problem affects competition in the upstream part of the chain. In particular, competition may be softened up to a point where both the high- and the low-quality upstream suppliers benefit from labeling while all the intermediary producers or final consumers lose from labeling. This result is established on the basis of a simple model with two vertically related markets (a competitive downstream market which is supplied by an upstream duopoly) where the quality of the downstream output is determined by the quality of the upstream input.

Keywords: LABEL; IMPERFECT CONSUMER INFORMATION; VERTICAL PRODUCT DIFFERENTIATION; VERTICAL RELATIONS; REGULATION (search for similar items in EconPapers)
JEL-codes: L15 L50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
Date: 2008
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Persistent link: http://EconPapers.repec.org/RePEc:gbl:wpaper:200804

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