Downstream labeling and upstream price competition

Olivier Bonroy and Stéphane Lemarié

Working Papers from Grenoble Applied Economics Laboratory (GAEL)

Abstract: The paper analyses the economic consequences of labeling in a setting with two vertically related markets. Labeling on the downstream market affects upstream price competition through two effects : a differentiation effect and a ranking effect. The magnitude of these two effects determines who in the supply chain will receive the benefits and who will bear the burden of labeling. For instance, whenever the ranking effect dominates the differentiation effect, the low quality upstream firm loses from labeling while all downstream actors are individually better off. By decreasing the low quality input price, the label acts then as a subsidy which assures an increase of the downstream market welfare. This analysis furthers our understanding of the economic consequences of the public labeling in cases like restaurants or GMOs.

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)
Date: 2010
New Economics Papers: this item is included in nep-agr, nep-com and nep-ind
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Downstream labeling and upstream price competition (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:gbl:wpaper:201001

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