Vertical product differentiation and credence goods: Mandatory labeling and gains from international integration

Ian Sheldon and Brian Roe
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Ian Sheldon: The Ohio State University

EconoQuantum, Revista de Economia y Finanzas, 2008, vol. 5, issue 1, 9-33

Abstract: Using a model of vertical product differentiation, we show under what institutional circumstances welfare gains will be maximized as economies integrate and harmonize (mutually recognize) their (each other's) labeling and certification policies for credence goods. Specifically, we show that harmonized mandatory, exclusive discrete labeling will not maximize the gains from economic integration, i.e., the choice of labeling regime can have a negative effect on market structure if firms choose to exit, reducing the range and quality of goods in the integrated market. In contrast, with mandatory, exclusive discrete labeling, there is a higher probability that the gains from integration will be maximized where countries mutually recognize each other's labeling standards.

Keywords: Vertical differentiation; credence goods; labeling; economic integration (search for similar items in EconPapers)
JEL-codes: F12 F21 L13 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:qua:journl:v:5:y:2008:i:1:p:9-33

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